Weekly Update 24th – 28th May

Global markets nosedived after German financial regulator introduced a temporary ban on naked short selling and naked credit-default swaps of Euro-area government bonds to provide stability to the financial system from the excessive price movements. The move shattered the confidence among investors that the various efforts like 750 bn euro package to tackle the situation are not enough to stem the crisis.

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EU countries efforts to cut down on their deficits by reducing spending & increase in taxes may lead to contraction in the region. The situation poses a serious threat to US & World economy as it could lead to slide in world trade & economic growth.

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According to Emerging Portfolio Fund Research(EPFR), investors withdrew $12 billion from European & US equity funds in the week to May 19. In order to tighten the US finance industry regulation, the senate approved a bill to impose restriction on banks proprietary trading & to create a consumer protection agency having powers to write & enforce rule to ban abusive lending. In another development Fed raised the US growth estimates to a range of3.2% to 3.7% this year & lowered forecast for unemployment & inflation. The European crisis has not only hit hard the equity markets but also commodities as well. With the commodity prices coming down especially oil, it has somewhat reduced the inflationary pressures building up in the economies.

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RBI deputy governor Subir Gokaran said “cautious pace is the best way to go and that is the stance,” after the Global economy outlook changes in the last six weeks. One the domestic positive development for the Indian Government that happened was 3G auction. The government managed to garner close to Rs. 70,000 crore, double the amount it anticipated in the budget estimates. This extra money is likely to lift the pressure on the market borrowing and will give some extra room to the government  for the developmental purposes. For the time being the markets are expected to remain in pressure & will eye on the monsoon to gauge how Indian economy will behave in the rest of year as agriculture is the mainstay for the overall development.

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Overall trend of world stock markets is down though in the short term they are oversold and a bounce can be expected in the coming week which would be more of a relief rally. Till the European markets do not stabilize, the recovery might be short lived. One should be cautious in such markets. Nifty faces resistance between 5040-5120 levels and Sensex between 16800-17100 levels.

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Volatility in the global financial markets is expected to calm down in near term which will lead to some recovery in base metals and crude oil. European Union finance ministers pledged to stiffen sanctions on high-deficit countries and ruled out setting up a mechanism to manage state defaults. Bullions may continue to trade on weaker path as decline in safe haven status can keep the prices pressurized.

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Weakness in local currency has curtailed the volatility in bullions in domestic bourses to greater extent. Key economic releases like US GDP will set the course this week for base metals. Bulls may again take center stage in spices while oilseeds counter may try to find direction taking cues from CBOT and BMD. Wheat and Chana can trade in range with marginal buying.

WEEKLY COMMENTARY 1st – 05th March

Series of economic data amid Indian Union Budget resulted in erratic price movements in commodities throughout the week. Market participants indulged actively themselves in the market. Bullions cut some of their losses in the later part of the week on short covering.

Expiry of February contract of base metals also made them very volatile. Most of them surrendered their previous gain on poor outcome of economic data.

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Strong dollar together with the most recent signs that the U.S. economy is still struggling to recover, led bearishness in all base metals. On the date of expiry, lead closed down and the gap between lead and zinc  narrowed down to 90 paisa. Similar to base metals, even energy complex drifted lower on negative economic releases in the middle of strong dollar.

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A stronger dollar makes oil and other commodities less affordable for holders of other currencies. On MCX, it touched the 3722 and moved down towards the level of 3600 on profit booking. Rising number of rigs coupled with rising mercury in Midwest cooled down natural gas prices further. On Friday, commodities recovered marginally on improved US GDP.

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Bears were seen active in agro-commodities last week as most of the future contracts on NCDEX settled in red zone on weekly basis. Guar pack settled in red territory as weak domestic and export demand hammered maize prices on future bourses.

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In oil seeds section, soyabean also ended the week with negative impression as the Indian market moved in line with weak overseas market. Continuation of subdued demand for soy meal from South East Asian countries and ample stocks of edible oil kept prices under check during the week.

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Mustard seed futures traded range bound. Lack of demand and improvement in weather condition had a bearish impact on market in the week gone by.

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In spices pack except turmeric futures all other futures settled in red zone. Pepper and jeera futures maintained their downtrend during the week taking cues from the higher fresh arrivals to the physical market. However turmeric futures ended the week on positive note supported by good export demand. Maize also traded in negative zone due to fresh crop arrivals and higher output estimates. According to latest government estimates the total output of current rabi season will be at 5.64 million tonnes over 5.61 million tonnes last year.

US Economists feel Positive, says Worst is Behind :)

Among the world’s large economies, UK, which is the seventh largest and Italy, the tenth, remain in recession, like the US.

The UK economy shrunk 0.8% in the second quarter, while Italy’s was down 0.5%.

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Unlike in the UK, however, economists in the US believe the worst may be behind them.

‘‘It’s quite possible, though not certain, that retrospectively, we’ll say that the recession ended in July or August, may be September,’’ Nobel laureate Paul Krugman was quoted as saying.

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There is evidence that his is not undue optimism.

The pace of job losses in the US slowed more than forecast in July and the unemployment rate dropped for the first time in more than a year.

US GDP also shrank by just 0.3% (equivalent to an annualized 1%) in the seconnd-quarter after a 6.4% drop in the previous three months.

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That explains why US Federal Reserve is willing to bet that the nosedive the economy had witnessed in recent months is behind it.

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Over the last two years, the US has witnessed its worst financial crisis in decades, but that could be ending, which is good news for the world since it accounts for a fifth of global GDP.

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France and Germany also announced unexpected returns to the growth path, which means that four of the world’s five largest economies and six of the top 10 are now not in recession.

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Adding to the sense of optimism, the US Federal Reserve left rates unchanged, saying that the world’s largest economy was showing signs of levelling out.

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Among the five largest economies of the world, measured in purchasing power parity (PPP) dollars — which is more of an apples to apples comparison — China and India are already growing at healthy rates, although lower than their own pace for the last few years.

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Japan too has climbed out of recession and so has Germany.

These economies and the US account for 47% of world GDP in PPP terms.

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Among the world’s other large economies, Brazil is also now no longer in recession having grown by 1.5% in the second quarter.

Among the world’s large economies, UK, which is the seventh largest and Italy, the tenth, remain in recession, like the US. The UK economy shrunk 0.8% in the second quarter, while Italy’s was down 0.5%.

Unlike in the UK, however, economists in the US believe the worst may be behind them. ‘‘It’s quite possible, though not certain, that retrospectively, we’ll say that the recession ended in July or August, may be September,’’ Nobel laureate Paul Krugman was quoted as saying.

There is evidence that his is not undue optimism. The pace of job losses in the US slowed more than forecast in July and the unemployment rate dropped for the first time in more than a year. US GDP also shrank by just 0.3% (equivalent to an annualized 1%) in the seconnd-quarter after a 6.4% drop in the previous three months.

That explains why US Federal Reserve is willing to bet that the nosedive the economy had witnessed in recent months is behind it. Over the last two years, the US has witnessed its worst financial crisis in decades, but that could be ending, which is good news for the world since it accounts for a fifth of global GDP.

Some light showed up at the end of the recession tunnel on Wednesday as France and Germany announced unexpected returns to the growth path, which means that four of the world’s five largest economies and six of the top 10 are now not in recession.

Adding to the sense of optimism, the US Federal Reserve left rates unchanged, saying that the world’s largest economy was showing signs of levelling out. Both France and Germany had been predicted by most economists to face a decline of about 0.3% in their GDPs for the second quarter (April-June) of 2009, but they surprised themselves and the rest of the world by announcing that they’ve actually recorded growth of 0.3% each.

Among the five largest economies of the world, measured in purchasing power parity (PPP) dollars — which is more of an apples to apples comparison — China and India are already growing at healthy rates, although lower than their own pace for the last few years. Japan too has climbed out of recession and so has Germany. These economies and the US account for 47% of world GDP in PPP terms.

The Eurozone as a whole is also now projected to have contracted by just 0.1% compared to the 2.5% fall in GDP in the first quarter (January-March). The growth rates reported by Germany and France may seem like nothing to get excited about, but considering that German GDP shrunk by 3.5% in the first quarter and France’s by 1.3%, it is quite a smart turnaround.

Among the world’s other large economies, Brazil is also now no longer in recession having grown by 1.5% in the second quarter.