Posts Tagged ‘world economy’

Weekly Update 27th September – 1st October 2010

Indian Markets posted fourth weekly consecutive gains led by rising optimism of growth and portfolio investments. The run up in the market was phenomenal and beyond expectations of market participants. Global investors seems to be going more anxious about India consumption and growth, complemented by continued monetary accommodation by developed nations in  order to propel growth. Indian Government recently raised the cap of foreign investments by $ 5 billion in federal and corporate bonds with a residual maturity of over five years. The step is viewed very positively in the sense that the ease of limit in federal bonds will take out interest rate pressure from the banks. The ease in corporate bonds issued by companies in the infrastructure sector will fill the estimated financing requirement of $1 trillion in the five years to 2017.


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U.S. central bank kept its benchmark interest rate in the range of zero to 0.25 percent .The bank said that they are prepared to provide additional accommodation in the light of slower economic recovery. The statement raised the speculation that the bank may buy more treasuries down the year. Weaker growth has still kept the unemployment at above 9 percent levels and reflects that companies are still cautious. The U.S. markets surged to highest level since May as the orders for durable goods rose the double of market expectations.

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Another happening that market is keeping an eye on is the political pressure building on Obama administration to take a stance on the China’s currency policy. The yuan has appreciated about 2 percent against the dollar since the central bank said it would pursue a more flexible exchange. However U.S. wants to see more rapid and “significant” rise in the yuan’s value.

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With the visible positivity across the globe, Indian markets are maintaining up move and managed to close above the psychological mark of 6000 levels on the weekly basis. The weakness in the dollar index clearly strengthens the equity markets and lead to the fresh breakout especially in US and European counterparts.

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One should maintain the stance of buying on dips. The Midcap stock may provide handsome return in the near future. Nifty has support between 5900- 5810 and Sensex between 19640-19200 levels.

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It appears that bullion counter is taking advantage of every opportunity and making new highs now and then on rock solid fundamentals. Weaker than expected growth in manufacturing and services industries of euro zone, sovereign debt crisis in Ireland, plummeting dollar index amid some poor economic releases fuelled rally in bullions. Negative tone of global economy capped the upside of base metals and energy  counter, even fall in dollar index could not give much impact and they appeared shy to break the resistance. Local currency appreciation locked the movement of commodities. This week is full of event risk. GDP data of US and UK, consumer confidence data and employment data of US may give further direction to  commodities. Crude oil is witnessing lackluster trading and thus moving in range on ambiguity in the world economy. Energy counter needs big news for further direction. Spices should revive in this week.

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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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“The Costliest And dreadful Affair”…Final Part :)

Continuing the Hurricane “costliest & dreadful affair”…………….. 🙂

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“Major affected areas”…it’s a nightmare for North and South America, and it comes from north-African low pressure systems and moves west. The Caribbean, Mexico, and United States are most often hit by hurricanes. Nearly half of U.S. oil refining capacity is located in hurricane affected areas.

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“Dreadfully risky business for insurance companies”…I hope every year insurance companies pray for clear weather for hurricane affected area. Imagine, insurance companies paid $66 billion for Katrina loss and it was the costliest disaster in the history of insurance. Louisiana accounted for 63 percent of insured losses and Mississippi accounted for one-third. On the contrary, it’s a boon for construction industry.

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“Makes big hole…effect on economy”… hurricane like other natural disasters, disturb the economic activity of regions in many ways as business activity is interrupted and infrastructure is destroyed. Approximately, single hurricane Katrina cost around $125 billion, with $66 billion in insured losses. It affected 19% of U.S. oil production. Power and energy companies’ financial condition gets damaged due to hindrance in production and supply activities amid storm restoration costs. Shipments also get affected and we know that nearly two-thirds of all oil processed by the region’s refineries arrives via ship, hence any natural disturbance will result in supply disruption. The Gulf’s ports are trading points for over 20% of cargo tonnage in the US.

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“Destruction…the ripple effect of hurricane”… just imagine the total loss, done by hurricane in US that single hurricane Katrina and Rita destroyed 113 offshore oil and gas platforms and damaged 457 oil and gas pipelines. Hurricanes Katrina and Rita reduced oil production by 103 million barrels and natural gas output by 610 billion cubic feet. But this is not enough; Katrina also struck the heart of Louisiana’s sugar industry, with an estimated $500 million annual crop value and made 75000 people homeless. Entergy New Orleans also filed for bankruptcy protection on September 23, 2005.

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“Impact on commodity…higher energy keeps inflation at higher side”… hurricane affected areas produces about 15% of US supply of natural gas and 7% of its oil. The Gulf of Mexico is responsible for 13% of the U.S. natural gas production (and 30% of its domestic crude oil production). Any supply disruption gives a leap to the crude and natural gas prices. By and large we observe price of crude oil and natural gas augment during the period of June to October. It’s a very active time for speculators and we can see the changes in front month contracts based on weather forecasts. Crude already zoomed up to the level of $87.15 on 3rd May, 2010. Now it headed towards quarterly decline since 2008. But there are major factors, which will keep the fire on in energy complex. Hurricane Alex has already hit this season and 20 more hurricanes of different categories are expected to hit in 2010. Hence any news of hurricane would fuel the prices. Driving season in US has already begun, which is the time, when money managers prepare to pull their sleeves to build a large position in crude. Furthermore ongoing summer season can give additional strength to the prices. Hence these factors will keep the crude prices at higher side but any weak economic indicator will cap the upside.

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In nutshell, nobody desires to get up with the news that hurricane is heading towards Louisiana when the entire world is struggling to overcome its financial problem. Whenever hurricane season starts it hoist, there is a fear of price rise of crude oil, which is not at all upbeat for the economies already in poor health. Traders start to quit their short positions. When you see a significant changes in the position of traders near June or July months, then you can assume simply that hurricane is about to knock the US field and money managers are preparing for a wild movements!!!

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“The Costliest And dreadful Affair”…Hurricane 1

It was only two months back when European debt crisis   wreked havoc on EU and the rippled effect was seen in other countries as well. Till date, many nations are still fighting with the financial problem, at the same time met department gave another jolt to the world and announced the unwelcomed and killer hurricane season.

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Hurricane…. derived from huracan, the Carib god of evil is once again become the headlines and racing the heart beat of people of affected areas, economists , government and all.  The forecast is expecting for a very active 2010 season with above-normal threats on the US coastline. This news is not at all encouraging for world economy, especially when world economy is under attack of financial tsunami. Let’s have a look on the details of this deadly hurricane which is a regular visitor every year and give crucial impact on the health of economy…

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“Timings, which does matter”… generally hurricane season starts from June and end in October. But very peaked season is from “August to October”; especially “early to mid-September” is the pinnacle. But of course, it is not mandatory that Mother Nature will follow the same calendar every year; remember hurricane Wilma hit on 21st and 22nd October, 2005. Weather specialists are predicting an above-average activity for the 2010 Atlantic hurricane season. Alex, first hurricane of 2010 already showed its existence.

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“Very attention-grabbing naming in chronological order”… they are named alphabetically. First tropical storm or hurricane starts by A, then B…and in this order. List contains hurricane names that start from Ato W, but exclude names that start with a “Q” or “U.” There are six lists which rotate. Changes occur in list only when there is a hurricane, which is extremely dangerous, after that the name retires and another hurricane name replaces it. Even in 2010 list, there are certain changes; viz- Charley was replaced by Colin, Frances was replaced by Fiona, Ivan was replaced by Igor, and Jeanne was replaced by Julia.

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“Category…grading of damages”…there are five category of storms viz.1, 2, 3, 4 and 5. Category 5 storms are the most catastrophic hurricanes that can form. On an average it forms once in three years, if we talk about Atlantic basin. Only four times — in the 1960, 1961, 2005 and 2007 hurricane seasons — have multiple category 5 hurricanes formed. However, on larger canvas between 1924 and 2007, 32 hurricanes have been recorded at category 5 strength. An average season usually has 11 storms, six hurricanes, and two major hurricanes.

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To be continued…………………

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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 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 Update 26th – 30th April 2010

Domestic markets started the week on a negative note on the back of the Greek debt issues and Goldman Sachs fraud issues, but managed to close in the positive terrain supported by firm US markets in line with less than expected hike in Policy Rates & Cash Reserve Ratio by RBI to tame the inflation; Policy rates and CRR increased by 25 bps each. The food price index rose 17.65% in the 12 months to April 10, marginally higher than an annual rise of 17.22% in the previous week. Moreover IMF announcement of India`s growth at 8.5% for the calendar 2011 boosted the sentiments.

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Additionally, announcement of government recapitalization of PSU banks stimulated banking sector and banking stocks were among the major gainers of the week. Good corporate numbers, expectation of good monsoon together with buying by foreign institutions kept the momentum intact for the rest of the week. Going forward market participants globally would be closely watching G20 finance chiefs plan to withdraw economic stimulus as the recovery strengthens.

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The IMF this week said that rising government debt is one of the biggest threats to the world economy.

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Forecast of normal monsoon season by Indian Meteorological department may keep the sentiments positive in the coming week but volatility may rise ahead of the expiry. On the global front, the UK’s economy grew at a slower than anticipated pace in the first quarter. In US, sales of new homes surged by 27 percent in March and orders for most durable goods climbed, indicating the U.S. economy is speeding ahead into the second quarter. Greece troubles that kept the markets jittery especially for the payments approaching in the month of May came to an end after it said that it has sought a relief aid from the European Union to save it from a default.

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US stock markets kept the rally intact which held the other world markets and did not let them fall.

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Shanghai remained under pressure as commodities saw some pressure and profit booking at higher levels. Indian stocks are seeing more strength in cash stocks and banking stocks. Nifty has support between 5200-5100 levels and Sensex between 17400-17200 levels.

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This week is full of event risk, especially from US economy side. Gradually, commodity is retreating from the higher levels but it will be too early to say that it is giving a clear indication for the approaching time. But yes, upside is limited.

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Negative expectation of US GDP figure for the first quarter may hammer the prices. If dollar index trades above the level of 82 then it would keep gold to be in sideways territory. Copper saw three weeks nonstop downside and it is expected to see more downside. Range trading in crude oil is indicating the saturation at the higher levels and market needs big news to see further upside..