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Weekly Tracker
Contents
Returns Non Agri Commodities Currencies Agri Commodities Policy Review RBI FOMC Non-Agri Commodities Gold Silver Copper Crude Oil Currencies DX, Euro, INR Agri Commodities Chana Black Pepper Turmeric Jeera Soybean Refine Soy Oil & CPO Sugar Kapas
*Weekly Performance for July contract, Mentha Oil Cotton & CPO- June Contract,
Repo Rate 7.25% Reverse Repo Rate 6.25 % Cash Reserve Ratio 4% Bank Rate 8.25%
This move by the RBI has largely dampened sentiments at a time when the world economy is suddenly witnessing a slowdown in growth momentum. Recent measures in order to reduce the Current Account Deficit (CAD) by way of curbing gold imports through restricting its supply and increasing customs duty, it looks like the RBI is using indirect measures to reduce economic hurdles and is also applying the same strategy to boost economic growth.
Repo Rate (%)
10.2 9.2 8.2 7.2 6.2
Repo Rate 7.25% Reverse Repo Rate 6.25% Cash Reserve Ratio 4% Bank Rate 8.25%
Fall in the WPI to 4.7 percent has not been a strong enough factor for the central bank to reduce interest rates as food inflation remains high. While factors like distribution and supply of food are affecting food inflation, measures to tackle the same need to be introduced. A good monsoon progress on a pan-India scale ahead of time will help to bring down food inflation in the coming months. Developments on the external sector front, being one of the major factors that drove the RBIs decision, need to be looked at closely. Sharp depreciation in the Rupee along with a widening of the trade deficit due to a surge in gold imports has restricted interest rate cuts by the RBI. In its review, the central bank has indicated that the key to boosting economic growth could be done through increasing investment by creating a favorable and conducive environment for private investment, improving project clearance and raising the role of public investment.
7.25
6
5.2 4.2
8 7.5
7
6.5 6 5.5 5 4.5 4 3.5 3
27-04-2001 28-05-2001 23-10-2001 28-03-2002 30-10-2002 3-03-2003 19-03-2003 25-08-2003 27-10-2004 26-10-2005 8-06-2006 31-10-2006 31-03-2007 25-06-2008 20-10-2008 8-12-2008 5-03-2009 19-03-2010 2-07-2010 16-09-2010 25-01-2011 3-05-2011 26-07-2011 25-10-2011 17-04-2012 19-03-2013 17-06-2013
27-04-2001 28-05-2001 23-10-2001 28-03-2002 30-10-2002 3-03-2003 19-03-2003 25-08-2003 27-10-2004 26-10-2005 8-06-2006 31-10-2006 31-03-2007 25-06-2008 20-10-2008 8-12-2008 5-03-2009 19-03-2010 2-07-2010 16-09-2010 25-01-2011 3-05-2011 26-07-2011 25-10-2011 17-04-2012 19-03-2013 17-06-2013
4.75
6 5.5
6 5.25
6.25
4.5 3.25
FOMC Update
Withdrawal symptoms seen as Fed prepares to taper
Federal Reserve Chairman Ben Bernanke confirmed that the US economy was growing at a strong enough pace and that the central bank could now begin with tapering the stimulus World stocks, commodities and bonds slumped on this statement However, US Treasury yields on the 10-year note rose to a 15-month high of 2.36 percent on the day of the announcement The Fed is more confident about US economic growth than before, thus making the expected move more certain in the near future Fear of removal of excess liquidity from markets and its impact on the world economy led to sharp selling across risky asset classes immediately after the Feds announcement. Emerging markets are witnessing withdrawal symptoms already, with capital flows receding and currencies depreciating. Foreign Institutional Investors (FIIs) are not finding India a very attractive investment destination and the improving US economic scenario is leading to a shift in investment patterns from emerging and developing economies to the worlds largest economy the US. The Indian economy too will face a repercussion of the withdrawal and the domestic equities have seen a major negative reaction. A rise in US Treasury yields is seen, while the Indian 10-year benchmark yield is seen declining. Arbitrage opportunity for FIIs is vanishing in the Indian markets due to increase in hedging cost as Rupee has depreciated sharply. Hence, Treasury yields in the US look more attractive at this point in time, making the Indian bond market situation less attractive. Emerging markets would face the burden of this withdrawal plan as investors would move towards fixed income assets, while riskier investment classes will face downside pressure. World equity markets and the economy at large will undergo a weak economic phase once the withdrawal begins. Capital flows to emerging markets could be hit in a big way, thus affecting economic fundamentals.
However, Ben Bernanke left two cues in terms of the future as he said that the Fed could stop reducing its bond purchases or raise it again if the job market does not stabilise
It was reiterated in the Feds policy meet that interest rates would not be increased until the unemployment rate hits 6.5 percent or lower, given that the inflation outlook remains below 2.5 percent Also, the withdrawal process would begin once the unemployment rate comes around the comfort level of 7 percent The Dollar Index strengthened on Wednesday and Thursday but the currency could weaken in the short-term as liquidity is expected to continue until the pullback actually begins in the later part of the year The panic seen after Federal Reserve Chairman Ben Bernankes announcement yesterday clearly shows that the world financial markets witnessed withdrawal symptoms much ahead of the stimulus pullback process.
1,625
1,575 1,525 1,475 1,425 1,375 1,325
81.0
80.0
1,275
79.0
US Dollar Index
Gold
CME raises margins on gold futures Sharp selling in gold futures led the CME to increase margins on the gold contracts on Thursday after prices fell to the lowest levels seen in September 2010 Minimum cash deposit for gold traders will increase 25 percent to $8800 per 100 ounce contract Sharp decline in gold exports concerned the government, which then allowed units in SEZs to export gold items after a minimum value addition of 3 percent in gold jewelry and 5 percent in gold and precious stone studded jewelry. This measure would help to increase gold exports from India as gold exports had taken a hit of $0.8 billion in May13. Indian government cut the gold base import price to $450/10 gms from $459/10 gms In the Indian markets, sentiments towards gold purchases is turning mixed as Reliance Capital announces its decision to suspend gold sales This step by the company is taken In order to support the RBIs decision to curb gold imports, reduce the current account deficit and help to control the rising demand for the yellow metal Reliance Capital has suspended sales of gold coins and sale of gold in the physical form along with refinancing against gold, which is a very big market in India Stocks of Gold mining companies correct The steep fall in gold prices led to selling pressure in stocks of gold mining companies as margins would come under pressure due to low gold prices With the yellow metal trading around the marginal cost of production, gold miners are expected to witness a slow growth phase
Outlook
Over the week, gold prices in dollar terms are expected to trade lower as sentiments towards the yellow metal have turned weak. With clear indication that the Federal Reserve will begin its stimulus withdrawal in the coming months, the Dollar Index is expected to strengthen, thereby adding pressure on gold prices. In the Indian markets, a sharp correction in prices will be cushioned due to the depreciation in the Rupee. But the overall trend in the Indian markets is also bearish.
New subscriptions will also be suspended in the Reliance Gold Savings Fund, which has a corpus of Rs2600cr
Silver
28
26
ETF Performance
24
22
41,000
20
Outlook
A bearish trend is expected in silver prices over the week, with sharp losses in the Indian market to be cushioned due to Rupee depreciation. Spot Silver: Support 19.10/17.80 Resistance 20.55/21.65. (CMP:$19.58) Sell MCX Silver July between 42,500-42,550, SL-43,201, Target -40,200. (CMP: Rs.40,661)
19.5
79.0
Copper
Copper Inventories
LME Copper Future ($/tonne) MCX Near Month Copper Contract (Rs/kg)
7,100
6,900 6,700
Copper
Net short position in Copper rises
CFTC data showed that net short positions in copper increased sharply, marking the most in more than two months Negative Chinese economic data along with an overall slump in commodity prices has led to a bearish view for the metal
Outlook
Copper prices are expected to trade with a negative bias during the week despite supply-side concerns as a slowing Chinese economy coupled with Dollar Index strength after the Feds announcement over the stimulus pullback will lead to pressure on prices on the LME. On the MCX however, sharp decline in prices are expected to be curtailed due to weakness in the Rupee.
LME Copper: Support 6760/6630 Resistance 7010/7120. (CMP: $6671.0) MCX Copper: Support 402.50/396.50 Resistance 413/418. (CMP: Rs 397.95)
Crude Oil
Weekly Price Performance
Nymex WTI crude oil prices declined 4.3 percent last week and tested a low of $93.12/bbl On the MCX prices fell marginally by 0.5 percent over the week due to Rupee depreciation and oil touched a weekly low of Rs.5587/bbl
Nymex and MCX Crude Oil Price Performance
5,700 5,500 94.0 5,300 5,100 4,900 4,700 92.0 90.0 88.0 86.0 98.0 96.0
Inventories
Over the week, the inventory report was mixed as the API report showed a fall of 4.3 million barrels, while the EIA report showed an increase by 0.3 million barrels
Domestic crude oil production outpaced imports in late May13 for the first time since 1997 on account of increase in shale-led production Commercial oil stocks of 394 million barrels around their highest levels since 1980s The International Energy Agency (IEA) has forecasted that US oil output would touch 10 million barrels a day, rising 23 percent in two years American oil demand is expected to average lower at 18.6 million barrels a day in 2013, falling for the third straight year Fall in demand is due to decline in driving activity and rise in purchases of fuelefficient cars . In 2005, US demand stood at around 21 million barrels per day After the Arab oil embargo in 1973-74, the US had imposed a ban on oil exports, triggering supply shortage and a sharp increase in prices Due to advancement in oil production techniques such as hydraulic fracturing, there is an increase in output that could outstrip refinery capacity in the near future Net petroleum imports in the US now account for 40 percent of demand as against 60 percent in 2005 Domestic oil production in the US last year stood at a record of 766,000 barrels a day
388.9 387.6
394.9 388.6
394.6 391.3
394.1
For the first time since 1970s, US could start exporting oil
385.9 382.7
Crude Oil
Oil demand is the US falls in May13
Oil demand slipped more than 1 percent in May13 as compared with a year earlier, marked by a sharp decline in usage of gasoline by 3.3 percent Consumption stood at a monthly average of 18.503 million tonnes in May13, touching a two-year low Gasoline demand fell to a 13-year low of 8.697 million barrels a day in May13, per day use in gasoline fell 300,000 barrels from May12 Ultra-low- sulfur diesel use increased to 3.619 million barrels per day 5.1 percent y-o-y in May13
Outlook
A comfortable supply-side scenario along with increase in inventories is expected to be bearish for crude oil. Over the week, prices are expected to trade on a negative note, with a stronger Dollar Index adding additional pressure on prices. Rupee depreciation will help cushion sharp decline in prices on the MCX.
Oil output in US
Output jumped almost 15 percent y-o-y to a 22-year high in May13 to 7.287 million barrels per day, topping 7 million barrels a day for the seventh straight month New drilling technologies such as hydraulic fracturing and horizontal drilling has unlocked oil deposits trapped in shale rocks Demand for imported crude oil will reduce with increase in indigenous production and high oil inventories Oil imports in the US fell by around 1 million barrels per day as compared to a year earlier to an 18-year May low of 7.916 million barrels per day Crude oil stocks during May-end stood at 388.6 million barrels, touching the highest since 1981 Refinery processing of crude oil rose by 0.2 percent y-o-y to 15.208 million barrels a day, thus increasing the output of major petroleum products
US Dollar Index
84.0
83.0
82.0 81.0 80.0 79.0
Euro
Italy boosts infrastructure spending Italy, the fifth-largest European economy, announced its decision to boost infrastructure spending. Italian Prime Minister accepted measures to invest more than 3 billion Euros of funds to develop roads and railway lines This move will help to increase employment levels in the country as the infrastructure spending is expected to create 30,000 jobs Outlook Over the week, a stronger Dollar Index will continue to add pressure on the Euro Movement in the currency will be driven by the sentiments is the world financial markets, which are still connected to the Feds announcement made last week Weekly Technical Levels
EURO/USD SPOT: Support 1.3056/1.2990 Resistance 1.3210/1.3310. (CMP: 1.3104)
EURO/INR - Spot
79.0
78.0 77.0 76.0 75.0 74.0 73.0 72.0
71.0
70.0 69.0
Chana
Outlook
Weekly Strategy
Turmeric
Better than expected exports Commencement of sowing of Turmeric for the 2013-14 season
Outlook
Weekly Strategy
Jeera
International Scenario
Outlook
Jeera is expected to trade higher this week on expectations of good overseas demand. Also, declining arrivals may support prices. However, higher production figures this season may cap sharp gains and pressurize pries at higher levels. Good progress of the monsoon may also limit the upside in the prices.
Buy NCDEX Jeera July between 13500 13550, SL 13150, Tgt 14000/14100.
Source: Ministry of Agriculture, Gujarat.
Weekly Levels
Soybean
Outlook
Strategy
Global Scenario
Domestic Scenario
Strategy
Sugar
Outlook
Strategy
Kapas/Cotton
Outlook
Strategy
Thank You!
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