Posts Tagged ‘Nickel pig iron’

Weekly Update 28th June – 2nd July

China’s central bank move to increase flexibility in yuan against the dollar pushed global markets higher with the onset of the week. The optimism for the demand of commodities rose as the move is expected to increase Chinese consumers demand with the rise in purchasing power. Thereafter, the worrisome news flow from both U.S. & Europe only gave weakness to the markets.

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Disappointing earnings forecast by U.S. companies reignited the growth concerns in the market during the week. Fed policy makers left the overnight interbank lending rate target unchanged in a range of zero to 0.25 percent. Fed echoed that low inflation, stable price expectations and high unemployment “are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

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It said the U.S. recovery is progressive but not strengthening and “Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.” Concerns also rose about solvency position of both U.K. and Global banks. Bank of England said that U.K. banks remain “vulnerable” to further writedowns on their assets because of a potential decline in investor appetite for risk. Overall investors are circumspect of the global recovery and are not sure whether the austerity plan by various government will lead to economic prosperity.

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The Indian government now seems to be batting its second innings in power by working on many reforms that were in its agenda for long time. On the recommendations of Kirit Parekh committee, the government decided to go ahead by linking petrol prices to market linked prices & giving Rs. 2/-, Rs. 3/- & Rs. 35/- hike in diesel, kerosine & LPG prices respectively. The long awaited step is expected to cool down the burgeoning under-recoveries of OMC’s & will help consequently in lowering the fiscal deficit. As per our estimates the said increase will accentuate inflation by close to 0.50%. The move that was quite necessary from the long term perspective may put some pressure on the Equity & Bond Markets. As we are already facing high inflation & are on mercy of good monsoon, the step is likely to increase worries. We expect now, with the robust manufacturing activity & clear signs of demand pull inflation the next step may come soon from the monetary body by hiking policy rates. The move may lead to some correction in the capital markets & bond prices may fall.

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Trend of Indian stock markets is up though U.S. and other markets is down which is giving rise to volatility here. Even dollar index is taking some reaction which might give some relief rally to metals in coming week. Nifty has support between 5200- 5100 levels and Sensex between 17300-17000 levels.

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Notwithstanding the doubt over the health of world economy, especially U.S. and Europe, commodity is reacting optimistically on every small news and statements.

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CRB index is going through a consolidation phase; any positive news can result in good upside. Two factors; flattish dollar index amid strong Asian economic growth accompanied by commodity demand can keep commodity on stronger side. In past seven months dollar index has rallied around 20%, the move was not showing the inner strength of dollar, rather it was majorly due to European debt crisis and safe haven demand. If we see rangebound to bearish movements in dollar index again it will boost up commodities prices. However, we can see some correction in between, but that should be considered as good buying opportunity.

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Weekly Update 21st – 25th June

Global markets saw synchronized gains of more than two percent this week except China’s Shanghai Composite Index which closed in the negative. The recent measures that were taken in China to cool down the economy like larger down payment for home buyers and increase in reserve requirements for banks seems to have started showing its effects as reflected by the weakening demand for construction metals like Nickel pig iron. Asset price bubble concerns rose after property prices in China rose by 12.4 percent in May.

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China Banking Regulatory Commission said that risks associated with home mortgages are growing and a “chain effect” may reappear in real-estate development loans. The economic restructuring in China has raised the possibility of resurgence in credit risks. The index of leading indicators in US, a gauge of the outlook for growth over the next three to six months, climbed 0.4 percent in May. It is viewed that the largest economy will continue expanding though at a moderate pace in the second half of the year without stoking inflation & creating fewer jobs. This would help the Federal Reserve in continuing with low interest policy for longer time. The European Union’s decision to publish the results of stress tests came after more than a year when U.S. published the results of stress tests on 19 financial institutions. The details of the tests including whether they include a sovereign debt restructuring is not yet disclosed by the European Union. However the step is welcomed by the investors as it will reveal the soundness of the European financial system.

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Coming back at home, as mentioned last week the possibility of hike in policy rates by RBI is gaining strength after Inflation accelerated to 10.16 percent in May giving concerns of generalized Inflation in the economy. Demand side pressures are quite evident now with the encouraging growth in Industrial production together with healthy growth in Exports and Imports. The European concerns that may have a bearing effect on the India’s trade and temporary liquidity squeeze in the Banking system has so far refrained the Banking regulator to continue its exit from an expansionary policy in a calibrated manner.

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Indian Stock Markets went up sharply last week and are looking much better but the problem it seems is with other world markets. It has to be seen whether the Indian markets are able to pull the other markets up or the weaker markets pull down India. Base metal commodities are not doing well though precious metals are all looking good. It seems volatility is likely to continue in such a scenario.

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Nifty has support between 5200-5100 levels and Sensex between 17300-17000 levels.

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Market players were enthralled with the captivating movements commodities noticed last week. Base metals and energy touched multi months low in the beginning of the week while second half of the week witnessed steep profit booking. Sideways congestion may be witnessed in commodities this week, as investors are endeavoring to figure out the next direction in commodities.

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However, the week is full of event risk and may trigger volatility in between.

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Many meets and high importance economic releases from US, UK and other nations are scheduled this week. Traders may refrain to create large position before FOMC meeting, which is scheduled on Wednesday.