Posts Tagged ‘Federal Reserve’

Weekly Update 25th – 29th October

Losses due to profit taking in the Indian markets during initial part of the week were recouped seeing the huge response for Coal India offering especially from the overseas investors. The issue attracted bids that exceeded the combined gross domestic product of Latvia and Iceland. However most of the Asian markets corrected in the week gone by after China unexpectedly raised interest rates to curb inflation and to prevent an asset price bubble in the economy on concerns over regions economic growth.

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The move indicates that the consensus has been reached for lower growth. Albeit past experience has shown that initial interest rate hikes does not give much harm to economic growth. China’s economy expanded by 9.6 percent in the third quarterless than the growth experienced in the prior quarter but higher than the median estimates of 9.5 percent.

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Results of companies from Europe to U.S. supported markets. According to Bloomberg data of the 132 companies in the S&P 500 that reported results since Oct. 7, more than 85 percent have topped analysts’ per- share earnings estimates.Whereas in Europe, of the 46 companies in the Stoxx 600 that have posted results since Oct. 7, 32 have beaten estimates for per-share income.

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The result season has so far been good in India. Banks have posted decent to strong earnings growth. In the Information technology sector TCS and Infosys surprised positively while Wipro surprised negatively. Auto companies are expected to deliver strong set of numbers on the back of higher volumes with price increase. Higher metal prices are likely to provide good earnings to manufacturer of base metals. Cement companies are likely to post bad set of numbers on the back of lower realization and good monsoon season.

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Market is eyeing over G-20 finance chiefs meet to try to resolve differences over countries that are devaluing their respective currencies in order to spur economic growth and to endorse market-based exchange rates in a fresh effort to defuse mounting trade tensions before they hurt the world economy. We may see some volatility in domestic markets on account of expiry week.

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Stock specific activity is likely to play out as the results season is still going on. Nifty has support between 5950-5870 and Sensex between 19640-19200.Good corporate earnings amid falling dollar index are offering opportunities to bulls to keep the momentum in their favour, especially in base metals. 19-commodity Reuters-Jefferies CRB index, which serves as a broad benchmark for commodities investors, was up for a ninth straight week since Aug. 22.

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Monetary tightening by China could not give much impact on base metals prices. In case of bullions, trend is little different. Bullions prices retreated across the board as dollar index grew stronger and investors opted to sell some of their holdings for aprofit. For the time being bullions should move in a range. Market players appears cautious to some extent ahead of next month’s decision from the Federal Reserve about whether to take steps to stimulate the economy. Even energy pack is moving in a range on mixed fundamentals. Bulls are more active in agricultural commodities owing to the ongoing festive fever.

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Weekly Update 16-20th August 2010

Global markets fell in the week to date on renewed concern arising about the global recovery. Investors hoping for quick recovery got worried with the U.S. Federal Reserve saying that growth “is likely to be more modest” than they previously projected. It said that the pace of recovery in output and employment has slowed in recent months.

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The Fed left the overnight interbank lending rate target in a range of zero to 0.25 percent and repeated a pledge to keep rates low “for an extended period.” Stocks further came down with the data showing that more Americans filed applications for unemployment benefits raising the concerns over the consumer spending. Initial jobless rose to highest levels since mid February to 4,84,000. Industrial production in Europe unexpectedly declined in June by 0.1 percent from May on account of a drop in consumer durable goods.

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Another report showed that consumer confidence in U.K. dropped to a 15 month low in July. Bank of England said growth will be weaker and economy may need more emergency stimulus. It reduced its growth forecast to 3 percent annual pace from 3.6 percent rate forecast in May. The Bank of England held its bond-purchase plan at 200 billion pounds ($315 billion) and kept the main rate at a record low. Japanese markets too witnessed selling, with yen coming near to 15 months high to dollar, raising concerns over export earnings. China saw a smaller expansion in Industrial output in 11 months in July to 13.4 percent. Credit off take in China too expanded by least since March and export orders contracted in July on weak global demand.

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India’s Industrial production growth moderated to a 13-month low of 7.1% in June from 11.3% in May, weighed by a high base effect and sharp slowdown in the capital goods segment. Growth in capital goods segment weakened to 9.7% in June from 34.2% in May, suggesting a slowdown in investment demand. However, consumer demand remained strong with consumer durable goods growing over 20% for the 12th month in a row. With the base effect stronger from now onwards, the industrial growth rate is likely to remain below 10% for some time.

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The developed countries still resorting to provide stimulus to their respective economies in order to sustain the growth pace is likely to keep up the foreign money flowing into the emerging markets like India.

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Moreover with the good monsoon season, moderating Industrial production and edgy global recovery it looks RBI would wait for a while before further hiking its policy rates. Trend of the world stock markets on a weekly basis is still up but the sharp profit taking in many exchanges along with a sharp rise in dollar index is a sign of concern. But till the trend is up, one should be playing from the long side of the market. Nifty has support between 5350- 5300 levels and Sensex between 17800-17600 levels.

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Last week drop in commodities along with recovery in gold and dollar index after many weeks is advocating that upside in metals and energy is limited. Widening US trade balance and slow rise in Chinese factory order amid Chinese monetary tightening cooled off the prices. However, it will be too early to say that metals and energy will take a downturn. But they can see a gradual decline, especially base metals. Some important data from US and UK will further give direction to the commodities. Expect a mediocre week for agro commodities as market has discounted almost all big news. Keep an eye on monsoon and sowing update. Grains and pulses futures can trade in slim spread on mix fundamentals. Upsides in oilseeds appear limited for the time being.

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Weekly Update 26th – 30th July 2010

The markets witnessed good buying in the week gone by as the corporates from U.S. to Europe showed good performance raising the confidence in the strength of the global economic growth. Continuous buying by the foreign institutions and the strength in the developed markets helped stocks to scale 29 months high. U.S. Fed chief Ben S. Bernanke said that central bank would take additional action if the world’s largest economy does not continue to improve.

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European Banks Stress test result showed that from a sample of 91 European banks, representing 65% of the European market in terms of total assets, 7 banks would see their Tier 1 capital ratios fall below 6%. The focus of the test was mainly to assess the ability of the banks to absorb possible shocks on credit and market risks, including sovereign risks over a 2 years horizon, until the end of 2011. The test revealed that the aggregate Tier 1 ratio, used as a common measure of banks’ resilience to shocks, under the adverse scenario would decrease from 10.3 percent in 2009 to 9.2 percent by the end of 2011 (compared to the regulatory minimum of 4 percent and to the threshold of 6 percent set up for this exercise). However investors are still ambiguous about the credibility of the test as it ignores the majority of banks’ holdings of sovereign debt assuming a case of no default by Greece or any other European country.

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India Inc. has so far shown good performance. The net profit of 339 companies that have declared results has grown by 25.5 percent and sales have shot up by 17.8 percent compared to corresponding quarter last year. The annual monsoon rains improved 24 percent from the deficit in the previous week, but were still 17 percent below normal in the week to 21July 2010, as per the data of the India Meteorological Department on Thursday, 22 July 2010. The seasonal monsoon rains during 1 June to 22 July 2010 were 12 percent below normal.

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The expectation of another 25bps hike in policy rates has already been built in the market. Market would take a cue from what RBI says in its monetary policy on 27th July about the health of domestic market and the steps in its act of balancing growth while anchoring inflationary expectations.

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Trend of Indian Stock Markets is up since a month and now the world markets are also participating in the rally. The rise in Base metal commodities is giving more steam to the rally as that is a reflection of increasing demand for metals in the industry. Nifty has support between 5315-5250 levels and Sensex between 17700- 17500 levels.

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Better than expected earnings amid optimistic equity market bestowed the much needed direction to the commodity market and thus it headed for biggest gain since March. In the meantime, dollar is going down and likely to trade in a negative territory as investors are moving back to the risky asset, which is appearing more promising in current context. Gold is narrating the same story and it is moving in a range with downside bias. Gold silver ratio has declined as silver outperformed gold, getting support from terrific rise in base metals prices. Energy complex has ignored the negative news and shore up on better results and strong technicals. But yes, it’s a time to book profit in spices as they are overbought now, especially pepper.

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Weekly Update 19th – 23rd July 2010

The concerns over recovery in global economy resurfaced in investors mind as China economy grew 10.3 percent in the second quarter showing moderation from 11.9 percent expansion in the first quarter. In U.S., consumer confidence dropped in July to the lowest level in the year to 66.5 from 76 in previous month and factory output too fell by 0.4 percent in June.

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The minutes released by the office of the Federal Reserve said that “The economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside”. The statement and weak data only added to the worries and led to the decline in most of the global markets.

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India’s Industrial Production growth came surprisingly low to 11.5 percent in May from a year earlier and the April growth was revised downward to 16.5 percent from 17.6 percent. It is expected that the Industrial Production will remain close to double digits as some of the leading indicators like vehicle sales remained buoyant in June.

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Keeping a vigil on the liquidity and in order to ensure smooth credit lines for both government and corporate to sustain the growth momentum, RBI has further extended the second liquidity adjustment facility (SLAF) on a daily basis till July 30, 2010. Strong credit growth in Banking system and Industrial production together with high food inflation may influence RBI to raise policy rates by another 25 bps in its first quarter review on 27th July.

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The latest statement by the IMD that the monsoon up to 15 July has so far been 14 percent below the long period average is a cause of concern.July, especially being the most important month for sowing the Kharif crops has led to the alteration of earlier beliefs that going ahead food inflation will moderate.

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Mostly world markets are in downtrend though Indian stock market is still in uptrend. The base metal commodities are not able to rise which is showing the underlying uncertainty in the markets. One should be cautious in such markets.

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Nifty has support between 5280-5220 levels and Sensex between 17600-17400 levels.Indian markets have gone up substantially in last one and half month and dollar index has fallen sharply from higher levels but the Indian rupee has not moved much which is a sign of concern as rupee should have strengthened in such an environment.

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Lack of clarity with reference to the direction of world economy is painting a hazy picture for commodity market. Even uncertain outcome of economic releases and result of second quarter is giving little direction to the commodities. Investors are refraining to make large position in current situation. This week, we have important data form UK and Canada. Housing data can give further direction to base metals. Bullions can trade in a slim spread. Expiry of July contract in NCDEX may result in more volatility in all agro commodities. After witnessing a multi week high some spices may see a pause in rally.

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COMMODITY WEEKLY COMMENTARY

Most of the commodities closed in positive territory when Federal Reserve repeated its pledge to keep monetary conditions loose for the longer term. Impact was seen on all metals and energy; despite the rise in dollar index. Base metals complex was no exception, copper traded in upside territory.

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Power distribution problems after a devastating earthquake in Chile also supported the price. Terrific short covering witnessed in nickel on the news that BHP Billiton would take up to two weeks to restart nickel production at its Kwinana refinery in Australia apart from other factors. Both, lead and zinc closed down.

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Event risk made energy complex volatile. OPEC for the fifth time since 2008 decided to maintain its production limits unchanged. Furthermore, crude stocks rose 1 million barrels last week, while distillate inventories fell 1.5 million barrels and gasoline stocks dropped 1.7 million barrels, according to EIA.

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Crude traded in upside territory but could not breach $83 per barrel. Worries about Greece’s debt problems capped the upside. Surplus in inventory gave a jolt to natural gas prices and its futures dropped to the lowest price in more than five months. Vague movements in dollar index and euro resulted in see saw movements in bullions. However, on Friday many commodities including base metals and energy complex erased their previous gains on rise in dollar index.

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Agri commodities on domestic front traded with sideways to bullish bias in the week gone by. Guar pack remained in range due to subdued trading activity in spot as well as future market. In oil seed section; soya bean prices traded in range while mustard seed futures gained smartly on NCDEX.

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Weak trend in overseas market and bearish domestic fundamental factors such as weak export demand for soya meal and ample inventories of edible oils capped the upside in soya bean prices. The sharp decline in Malaysian palm oil futures had also pressurized the prices. However, mustard futures gained on the back of strong fundamentals. Lower production projection for the current year had a positive impact on the market.

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In spices pack; turmeric and pepper shot up like a bullet last week while chilli and jeera futures remained range bound. Pepper futures traded on a positive note due to continued fresh buying on the exchange supported by the factor of tight supply situation amid gaining demand. Despite the expectations of increase in production, arrivals are on the lower side. This is leading to tight supply in the physical markets. Turmeric futures gained consecutively for the sixth week and hit contract highs in the week gone by on firm spot cues and low stocks, but conceded the gains by the end of the week on profitbooking.

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Rising arrivals and ample carry forward stocks were seen weighing on chana futures as prices settled in red zone.