Posts Tagged ‘Global markets’

Weekly Update 1-5th November 2010

Global markets saw profit booking ahead of the Federal Reserve’s decision on monetary easing at its meeting on 2-3 November 2010 in order to spur growth and to reduce the unemployment rate. Economists expect the Fed to buy between $80 billion and $100 billion worth of assets each month in a new program to stimulate the economy. IMF pointed out that global liquidity, by whichthey meant money supply growth in the G-4 economies of Japan, the US, the euro zone and the UK, has an impact five times as large as domestic liquidity on what it called the liquidity receiving economies, or the emerging markets.

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The U.S. gross domestic product rose at a 2 percent annual rate in the third quarter after a 1.7 percent increase in the previous three months. Japanese factory production fell 1.9 percent in September from August and core consumer prices saw a decline of 1.1 percent from a year earlier added to worries that stronger yen is affecting economy expansion. G-20 finance ministers and central bankers said they will refrain from “competitive devaluation” and let markets have a bigger role in setting foreign-exchange values.

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Citing Inflation a major concern, RBI has last hiked the policy rates by 25 bps in September for the fifth time. Headline inflation has come off to single digit and is likely to come down further going ahead as harvest season produce is expected to come in the market. The government recently allowed duty-free import of rice and wheat and has released grains from its stocks to rein in food price rise. On the manufacturing side, Industrial production growth dropped to 5.6 percent in August from 15.2 percent in July. The growth of six infrastructure industries has further slowed to 2.5% in September, pulled down by contraction in output of coaland petroleum refinery.Though possibility of hike of another 25 bps by RBI in its meeting on 2nd November cannot be ruled out but a large section of the market believes that this timearound RBI may not touch upon the policy rates citing inflation coming down going forward and moderation in manufacturing activity.

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Further the actions taken so far by RBI has yet to give any material affect in the economy as even after the hikes in policy, the banks have yet to make adjustments in interest rates. Nifty has support between 5930-5840 and Sensex between 19640-19200.Sea saw movements in commodities is showing the nervousness among the investors ahead of Fed meeting which is scheduled in this week. If Fed goes for second round of quantitative then it can give confidence to economy and spill over can be seen in commodity as well. On the other side, if Fed goes for less than expected money injection in economy then we can see some downside in base metals and energy.

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Dollar index slid about 6 percent since early September on the talk of same “QE2” in US. Bullions were the major beneficiary of this fall in dollar index. October was a volatile month for commodities in which commodities reacted on every speculation over quantitative easing and agricultural markets going their own way as crops forecasts were cut. Commodities end month with modest gain. Investors should adopt cautious approach ahead of meeting.

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Weekly Update 4th – 8th October 2010

Global markets closed on a mixed note in the week gone by, with Indian markets closing in positive on weekly basis. To send a message to China to raise value of its currency, the U.S. House of Representatives this week approved a bill that would let domestic companies petition for duties on imports from China to compensate for the effect of weak yuan. U.S. Treasury Secretary Timothy F. Geithner said he is confident that tensions over China’s currency, the yuan, won’t lead to escalating trade sanctions or feed into a broader global currency conflict.

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European confidence in the economic outlook unexpectedly improved this month. An index of executive and consumer sentiment in the 16 euro nations rose to 103.2, the highest since January 2008, from a revised 102.3 in August. The European Commission forecasted a more “moderate” expansion in the second half of the year as governments from Ireland to Portugal step up spending cuts to push down deficits. ECB President Jean-Claude Trichet said that there is “continuing uncertainty” about the outlook.

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China’s manufacturing expanded at the fastest pace in four months in September. According to China’s logistics federation and statistics bureau, the purchasing managers’ index rose to 53.8 from 51.7 in August. The data is viewed very positively by the market as it shows that China’s economic momentum may counter weakness in the global recovery. It is believed that growth may be further aided in coming months as government plans to speed the completion of stimulus projects and boost public housing construction.

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In Japan, the jobless rate fell to 5.1 percent from 5.2 percent. After intervening few days back in the foreign exchange market in order to stem the yen appreciation, Japan’s Finance Minister reiterated that Japan is ready to keep intervening after selling yen for the first time in six years last month.

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Core infrastructure industry that account for 26.7 percent of industrial output in India slowed to 3.7 per cent in August, as compared to 6.4 per cent in the same month last year. Going forward we expect the markets would remain firm as it is supported by strong portfolio investments. The best strategy to ride the tide would be stay invested. Nifty has support between 5940-5870 and Sensex between 19640-
19200 levels.

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Bullions may continue to lead the charge in the commodities counter as both silver and gold recently tested life time highs in MCX. The latest boon to the metal has been increasing expectations that the Federal Reserve will further ease monetary policy with measures including the purchase of Treasuries. Jitters about European sovereign debt problems have also supported gold higher as a safe-haven investment. Better jobless claims data and a revised upward GDP in US supported the crude counter which can make further gains in next coming week. Base metals will take cues from LME as China markets will remain closed for a week. In agro counter pulses along with oilseeds may trade in range while spices can get some support from upcoming festive season. Mentha oil firm export demand and low crop will assist the prices to make fresh high in MCX.

Weekly Update 23rd – 27th August 2010

The buying continued in the Indian markets and helped broader indices to surge to two and a half year highs. While negative sentiments in the global markets led to profit booking with major markets closing in the negative on weekly basis. The Federal Reserve Bank of Philadelphia’s general economic index dropped to the lowest reading since July 2009 to minus 7.7 this month, signaling contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

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The unemployment claims unexpectedly shot up by 12,000 to 500,000 last week more than the economist estimates. U.S. recovery is fading and European governments would struggle to reduce their deficits are the worrisome factors that are lingering on in the investors mind. The producer price index in U.S. increased 0.2 percent following a 0.5 percent drop in June.

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Excluding food and energy costs it climbed 0.3 percent signaling that world’s largest economy may not face deflation moving with slower growth. China, the Emerging Market frontier that saw an unparallel growth in the past is facing threats of faltering demand for exports as U.S. and European consumers are cutting spending, rising wages and the risk of bad loans from record lending by banks in the past. Japan Economy saw an expansion of an annualized 0.4 percent in the quarter ending June pushing it into third place behind the U.S. and China.

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In India, with good monsoon season the prospects of harvest have improved and now it is widely believed that inflation would come down by the end of this quarter. The primary articles index rose 14.85% in the year to 7 August 2010, lower than previous week’s annual rise of 15.66%. The food price index rose 10.35%, lower than previous week’s annual rise of 11.4%, as prices of vegetables, potatoes and onions fell.

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Going forward the domestic market is expected to remain firm with the support of foreign investment.

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However, investors will continuously monitor the global developments after some of the recent disappointing data coming from U.S.markets. Trend of Indian Stock Markets is up though other world markets are coming under pressure especially the European and US markets. Dollar index is showing some strength which is giving jitters to commodities. But till the trend of our stock markets is up, one should be playing on the long side with a cautious approach. Nifty has support between 5400-5350 and Sensex between 18000-17800 levels.

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Gold has benefited from last few weeks as investors are escalating the insurance like metals in their portfolio. However, gold silver ratio is rising once again as silver is moving in a range due to falling base metals. With the looming weakness in various economies, gold may invite bulls further. After touching many week highs, base metals washed off their previous gain on unexpected drop in Philadelphia Fed survey and bad employment data. Now the pulse of base metals is likely to be guided by the outcome of housing and durable goods data of US this week. Weakness in equity market, swelling inventories, slow recovery may weigh on the crude prices further, which already hit six week low last week. Dollar gain against euro is dampening the commodities demand, compelling CRB index to trade range bound with bearish bias.

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Nevertheless, lower level buying cannot be denied in between.

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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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Weekly Update 5th – 9th July 2010

The global markets fell in the week gone by as the manufacturing growth exhibited weakness from China to U.S. The investor’s across the globe became nervous with the fading signs of global recovery. G20 leaders said that the limited demand in advanced economies has left the world reliant on emerging markets, led by China, to drive a recovery is “uneven and fragile.”

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China’s manufacturing growth slowed more than expected in June adding to the concerns that the fastest- growing major economy is cooling. The government’s Purchasing Managers’ Index declined to 52.1 from 53.9 in May. In the U.S., manufacturing slowed in June with the cooling demand from rest of the world.

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The Institute for Supply Management’s gauge of manufacturing fell to 56.2 from 59.7 a month earlier.

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As anticipated in our last two editions, RBI raised the policy rates i.e. Repurchase and Reverse Repurchase rate by 25 bps taking it to 5.50 percent and 4 percent respectively as a part of the calibrated exit from the expansionary monetary policy. The strong growth shown by manufacturing sector especially capital goods sector, acceleration in credit growth and the widening current account deficit helped RBI to take such a step in order to anchor inflationary expectations going forward. In order to address the liquidity situation which is currently in deficit mode under LAF operations, RBI allowed banks to borrow to 0.5 per cent of their net demand and time liabilities (NDTL) even in case of a shortfall in maintenance of statutory liquidity ratio (SLR) till July 16, 2010.

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The expectation of hike in policy rates by RBI was very much priced in and will not have any bearing effect on the stock markets. However expecting good monsoon, the market was in the belief that inflation will come down in the months to come. But the recent numbers from IMD suggests a relook as so far the monsoon was 16 percent below normal in June 2010.

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Indian stock markets were holding on when all the world stock markets are falling but one should be very cautious when world markets are falling so much as Banking and IT sector are showing some weakness. Nifty has support between 5200-5100 levels and Sensex between 17300-17000 levels.

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Gone was wholly a brutal week for commodities. After the fourth quarter of 2008, first time commodities witnessed quarterly decline. Even the topmost hot favorite of investors gold and dollar index toppled down as money manager’s shifted their attentions towards euro, which saw a decent rise last week. Poor economic data’s in a row further pave the path for selling. At present one should wait for the clear trend. Base metals and energy have already seen a steep decline, may trade in a range for the time being. Similar story is of gold and silver.

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