Posts Tagged ‘stock markets’

COMMODITY WEEKLY COMMENTARY 27th September – 1st October

Gold prices hover around its life time highs last week on international as well as on domestic bourses as European stock markets extended their losses and crude oil dropped below $75 per barrel. However domestic silver futures gain reclaimed a new life time high on MCX while U.S silver hit a 30-year high as precious and base metals were further aided by a weaker dollar along with new data meantime revealed a downturn in European services and manufacturing output.

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A further decline in U.K mortgage and business lending, plus higher-than-expected U.S jobless claims for last week also supported the bullion counter last week. Base metal prices which were mostly trading lower during the beginning of the week bounced back strongly in the later part as investors moved to buy dollar denominated commodities to take advantage of fall in the dollar index. US equity markets ended lower as data indicated that house prices fell in July marking the eighth consecutive decline. Fed bought $2.07 billion worth of bonds, thereby boosting treasury prices and dollar continued to lose ground. In energy counter crude prices witnessed see saw moves during the week on mixed fundamentals. Crude traded below $75 per barrel as jitters increased due to the rise in U.S inventories highlighting weak demand, in spite of the dollar’s continued drop against its major rivals.

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Yellow spice turmeric showed wonderful recovery on dip in arrivals amid lower level buying. Domestic demand is expected to be strong during the ongoing festival season. With the same reason of dip in arrival, chilli futures also spurt in both spot and future market. Pepper surrendered its strength on heavy selling pressure, weak export demand in the middle of sluggish spot market. Fresh arrivals put pressure on jeera and cardamom futures and they closed the week on negative note. Fresh buying noticed in chana futures. Indian oil seeds and edible oil futures were moving on their own fundamentals. Fall in dollar index supported the price. Comfortable stocks could not give much impact on the prices. Soyabean and crude palm oil moved northward. Refined soya oil and mustard seed also closed the week on positive note.

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Fear of yield loss due to excessive rain in producing areas lent support to the guar counter; however upside was limited on lack of aggressive fresh buying. Technical support zoomed up mentha oil. Furthermore, temporary supply propped up potato in both physical and future market.

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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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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.

Weekly Update 14th – 18th June

The global Markets reacted in a negative fashion with the onset of the week due to concerns arising from small increase in non-farm payrolls in U.S. & default risk from Hungarian Economy. The investors concerns subsided after Germany factory orders surged for a second consecutive month in April.

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European debt crisis which has pushed down Euro 20 percent against the dollar seems to be helping the industry as the demand for goods from emerging economies like China is encouraging companies to add workers. Bernanke statement that the recovery is moderate-paced in U.S. further helped the market in recouping the losses. Although he said that Unemployment may remain high for some time. He also said that “We have right now a very accommodative, very easy monetary policy”. “We can’t wait until unemployment is where we’d like it to be” or inflation gets “out of control” to tighten credit, giving signals that hike in interest rate may come sooner.

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IMF is of the view that the risk to the growth has risen significantly and policy makers around the globe are left with little or no room to provide support to the growth. China surprised the markets as the economy withstood the European crisis after showing that exports grew close to 50 percent in the month of May from a year earlier and new loans were 630 billion Yuan ($92 billion), beating the expectations.

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In the monetary policy, Bank of England remained committed to the record low interest rates to stave off the threat of contagion from the euro region’s sovereign debt crisis. Coming back home, India’s Index of Industrial Production showed a significant growth of 17.6% compared to a year before. The seventh consecutive double digit growth complemented by double digit growth in capital goods & consumer durables may tempt RBI to raise interest rates with the Inflation hovering close to double digits. High inflation & more likely pick up in credit offtake due to strong Industrial Production activity may induce RBI to give signals to banks to raise the interest rates by making an increase in policy rates.

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Trend of world stock markets is still down though all markets took a sharp counterrally from lower levels. If the rally sustains this week, then we can say that temporarily they have made a bottom. But the fear of Euro zone would still linger on in the back of our mind. Nifty faces resistance between 5150-5180 levels and Sensex between 17200-17400 levels

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At present there are lots of opportunities for traders to take advantage of volatility in the commodity prices, but this is also the fact that money may not be consistently made on only one side. Last week, we saw a smart recovery in metals and energy complex while bullions fell. However, the movement was not so confident that we can say that downside is overdone and now we can see rally from the current levels. However, one can expect a gradual recovery in base metals prices. In bullions, rally may get tired but buying is still intact and any bad news can stimulate buying with limited upside. If positive data comes further as last week then base metals may see further recovery and vice a versa.

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Weekly Update 7th – 11th June

Unlike developed economies market that closed in red, our market closed in the positive on the back of robust GDP growth of 7.4% in the year ending March 2010 driven by solid rebound in manufacturing activity.

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Auto & Cement sales numbers also joyed the markets. Good monsoon which is likely to be in range of 98% of the long term average will help in entailing inflation and will boost rural economy, a major factor for the overall growth of the economy kept the markets on a strong foot in the week gone by.

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On the contrary, bad news continued from the rest of the world. Export led recovery is losing momentum in Japan. Manufactures are planning to increase production at a slower pace in the coming months in view of the cut in European government expenditures that may damp sales of Japanese goods over time. Unemployment is increasing and job prospects are worsening together with cuts in household spending.

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Euorpean region economy which is struggling to gather strength after the debt crisis and has sought to cut expenditure got another jolt after Hungary said its economy is in a “very grave” situation, reigniting concern the region’s debt crisis is spreading. Hungary Prime Minister said that talk of a default is “not an exaggeration” because a previous administration “manipulated” figures.

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The country was bailed out with a 20 billion-euro ($24 billion) aid package from the European Union and International Monetary Fund in 2008. U.S. markets saw Indices dropping to four months low after the lower than forecast payroll numbers for the month of May. However the positive news in the payroll survey was in earnings, the workweek, and production hours. Wage inflation picked up with a 0.3 percent rise in May, following a 0.1 percent advance the month before.

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The average workweek for all workers edged up to 34.2 hours from 34.1 hours in April. The gain point out to future hirings and suggests increase in industrial production for the month.

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Overall trend of world stock markets is still down though the markets tried to take a recovery intra week but the US and European markets spoiled the party.

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Base metal commodities did not bounce even slightly which went to show that stock markets tried a recovery without participation of industrial commodities.

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Nifty faces resistance between 5150-5180 levels and Sensex between 17200-17400 levels.

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Sentiments are still very fragile and investors are very watchful in commodity.

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Technically, base metals and energy appear oversold; hence they may generate some lower level buying. However, one should not judge it as a major one sided rally in these commodities as fears on European economy is still hovering. Even, negative outcome of economic data’s from various economies is further indicating slowdown in economic activities. If mercury goes high further and we see further decline in crude and other inventories in US, then it will stimulate buying in crude oil. Natural gas has already seen good short covering in the prices in past few weeks, can witness more buying for the same reason.

STEEL … “ECONOMIC POINTER TO GLOBAL RECOVERY”

Steel, the backbone of infrastructure, has shown wild swings in its prices globally. Steel long prices in NCDEX have shown volatile movement from  January’10 till April’10 this year as prices which were trading around Rs 29000 per tonnes in January’10 plunged below Rs 24000 per tonnes in mid February’10 but it again jumped above Rs 29000 in the beginning of April and again melted nearly to Rs 25000 per tonnes tracking jittery stock market and European debt crises. Greek financial crisis is likely to impact the global economy and industry in Europe thereby denting the demand in this favorite destination of steel flat products.

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On the domestic front due to recovery in automobile, consumer goods and infrastructure sector finished steel registered a growth of 9.2% in March 2010 as against a negative result of 1.8% in March last year. The rise in input costs (iron ore prices shooting up by over 90% and coking coal prices rising by around 55%) coupled with steady demand is the prime reason for the prices recovery. But the rise in steel products prices, especially flat products is bound to affect the prices of the end user industries like automobiles, air conditioners, refrigerators and so on, leading to further inflation in India.

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The basic raw material of steel, the coking coal, has acute shortage of premium quality and the demand is mostly met through imports in India. Generally, India exports iron ore mainly to China but in recent days it has been seen that India is importing iron ore and the demand for Iron ore is increasing here. The share of total Chinese iron ore imports has decreased, from 22.92% in 2006, 20.73% in 2007, 20.51% in 2008, to 17.71% in 2009. Going forward, the increasing demand for iron ore in India will stimulate the Indian government and enterprises to invest in the steel industry.

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According to Indian Steel Minister Virbhadra Singh “Government is aiming to achieve a 120 to 125 million tonnes of steel production in the country by 2011-2012 with major chunk being provided by the public sector” India is both importer and exporter of steel. During the month of January and February 2010, India imported 510,000 mt of steel products from China, up 351.57 percent year on year basis. In the years 2006 to 2009, China imported 74.78 million mt, 79.53 million mt, 91.04 million mt and 107 million mt from India, marking respective increases of 9.08%, 6.36%, 14.47% and 18.08% respectively..

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Outlook: According to World Steel Association the apparent steel use will increase by 10.7% to 1,241 mmt in 2010 after contracting by -6.7% in 2009. This represents an improved figure over the Autumn 2009 forecast for both 2009 and 2010. With these projections, world steel demand in 2010 will exceed pre-crisis levels of 2007. In 2011, it is forecasted that world steel demand will grow by 5.3% to reach a historical high of 1,306 mmt. The resilience of the emerging economies, especially China, has been the critical factor enabling the earlier than expected recovery of world steel demand.

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The outlook of the global steel industry in 2010 looks positive based on the below written reasons:

First, Chinese steel production and demand are likely to continue their relentless rise. Government stimulus packages from China to increase consumer demand for cars and home appliances have supported the demand. Perhaps, more importantly, the state is funding massive construction in the West of the country and immense infrastructure projects for rail, road and bridges in the East. This could lift steel output to above 600 million tonnes in 2010.

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Second, Indian steel manufacturing will reach an “all time” high this year, after another peak outturn in the previous twelve months period. New record steel production rates are also likely to be set in several other countries, including, Turkey and several Middle Eastern countries.

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Most of the steel boom will come from the developing nations of the World. However, manufacturing activity in many of the industrialized countries is starting to improve. This will add to the rise in steel production this year.

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According to world steel association “Global steel output in 2010 is forecast at 1,350 million tonnes. This represents an 11.1 percent increase on the anticipated 2009 outturn, which in turn, will be 8.4 percent below the figure recorded in the previous twelve months”.

According to industry and government officials at the OECD’s Steel Committee, the global steel industry is recovering faster than expected from the recession but the strength and timing of the upturn varies across regions and further improvements are expected in the short term although it may take years for some parts of the sector to fully recover.

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Finally steel long in NCDEX may remain sideways in near term considering the jittery situation in euro zone and tumbling stock markets. But it is expected to show recovery faster than expected as seen in recent past and the prices can scale higher towards Rs 28000 in third quarter of this year after taking support at Rs 22000- 23000 per tonnes.