Knowledge Quotient

6th September, 2010

Weekly Economic and Market Analysis:

The data flow continues to underscore a below-par global growth. However, there were recent signs that weakness is not intensifying.
Sensex and Nifty gained 1.2% and 1.3% to close at 18,221 and 5,479 respectively for the week.
10 yr benchmark yield was pushed up by good GDP data, higher inflation numbers, rising US T-bill yields and expectations on G-Sec auction cut-offs. The 10-yr benchmark traded between 7.93% -7.99% and closed at 7.98%.
The INR strengthened 0.4% over the week to 46.67/$, helped by some dollar sales by exporters, surge in domestic market and weakness in the US Dollar.
Experts have remained overweight on Agricultural commodities since the beginning of July due to significant supply risks from adverse weather conditions across the globe. But they remain underweight on oil on global growth momentum slowdown.

Global Data Watch
September 6, 2010

Data Review	Unit	Last	Consensus	Actual	Comments
Global
Japan Mfg PMI (Aug)	Index	52.8	54.0	50.1	PMI unexpectedly fell further in Aug. New orders also fell.
US ISM mfg (Aug)	Index	55.5	52.2	56.3	The index increased 0.8pt, better than expected. The details show that the employment measure increased 1.8pts to 60.4, the highest level since Dec 1983. On the downside, new orders fell for the third straight month, and inventories increased.
Euro area GDP revision (2Q)	% q/q	0.3 (1Q)	1.0	1.0	Euro area GDP growth was left unrevised in 2Q10, while growth was revised up by 0.5%-pt in 1Q.
US Pending home sales (Jul)	Mn	75.5	74.9	79.4	Pending home sales increased 5.2%. This sign of life in the housing market is a nice contrast to the record low new home sales data.
US Employment (Aug)	%	9.5	9.7	9.6	Private sector job growth was a little better than expected in Aug, and there were significant upward revisions to figures for prior months.
India
WPI Primary Articles for the week ending Aug 21	% yoy	14.75	-	15.19	Primary articles increased by 1.4% w/w due to sharp rise in prices of food (1.8% w/w), non-food (0.4% w/w) and minerals (1.4% w/w).
India Real GDP by activity or supply (1Q)	% yoy	8.6 (4Q)	8.9	8.8	Major components, Industry, Services and Agriculture exhibited strong growth. GDP by demand side grew at 10%.

Releases in bold are key releases; Out of 7 important data releases, 3 were better, and 3 were worse than expected and 1 was as expected.

Data Review	Unit	Last	Consensus	Comments
Global
Australia RBA policy meet, Sept 7	%	4.5	4.5	No change in rates is expected.
Japan BoJ policy meet, Sept 7	%	0.1	0.1	No additional easing measures expected. But BoJ might consider additional initiatives, in case the financial market condition deteriorates further.
Germany Trade balance (Jul), Sept 8	€ bn	12.3	-	Export orders did surge in June, rising 5.7%m/m. This could give a big boost to exports in July. But July exports are expected to remain unchanged.
Germany IP (Jul), Sept 8	% m/m	-0.6	1.4	German IP expected to have risen 1.4%m/m in July after declining in June.
UK IP (Jul), Sept 8	% m/m	-0.4	0.5	The PMI survey has pointed to a slowing in manufacturing activity into 3Q. But industrial production should improve in July.
UK BoE mtg, Sept 9	%	0.5	0.5	No change in rates is expected.
China Trade balance (Aug), Sept 10	$ bn	28.7	28.2	August’s trade report likely showed some further payback for the sharp spike in May and June exports.
Japan GDP 2nd est (2Q), Sept 10	% q/q	4.4 (1Q), 0.4 (2Q, 1st est)	1.5	The 2nd estimate 2Q GDP growth is expected to be revised up around 1.0%-pt from 1st est on higher investment.

Consensus forecasts are preliminary data, releases in bold are key releases.

Equity Market
September 6, 2010

Global Equity markets finished the week with a gain of 3.8%. The Wall Street closed a stellar week on last Friday after recent better than expected economic data, including a stronger-than-expected labor market report, increased optimism that the economy would not fall back into recession. US Pending home sales data and PMI manufacturing data were also better, which boosted the market. The S&P 500 closed above 1,100 for the first time since Aug 10. For the week, the Dow Jones industrial average rose 2.9% while the S&P 500 gained 3.8% and the Nasdaq gained 3.7%. While the month has started on a strong note, September is typically the weakest month for stock market performance.

Last week, Emerging Markets gained 3.5%. Within Emerging Market, EMF Latam and EMEA gained 3.8% each followed by EMF Asia with a gain of 2.9%. Last week, Hungary was the best performing EM while Morocco was the worst performing.

Global Emerging Market Monitor, Sept 3, 2010

	Best Performing Market			Worst Performing Market
Market (MSCI)	Hungary	Philippines	Chile	Morocco	Jordan	Egypt
Chg. over week (%)	5.0	4.9	4.9	-1.3	-1.2	0.7

Indian Equity market
Sensex and Nifty gained 223 points (1.2%) and 70 points (1.3%) to close at 18,221 and 5,479 respectively for the week. Sensex registered its fourth weekly gain in five weeks but it moved down 0.1% lower on Friday as investors were nervous before the key US job data.
In India, Cumulative rains in the country from 1 June to 1 Sept was below normal by 1%. For the season, rainfall was Excess/Normal in 29 out of 36 sub-divisions. Total cropped area affected by deficient rainfall is 29.5% compared to 74.3% at the same time last year. Sowing (until Aug 26) showed improvement over previous year. Rice sowing acreage is 6.5% higher than last year, sugarcane 14.1%, cotton 8.6% and pulses 22.1% higher compared with the same period last year.

Index Performance

3rd Sept, 2010	Index	% change
BSE Sensex	18,221	1.2
S&P CNX Nifty	5,479	1.3
BSE Small Cap	9,913	2.8
BSE 100	9,784	1.4
BSE 200	2,346	1.6

Credit Market
September 6, 2010

Sovereign Yield

10 yr yield%	Sept 3	1 wk prior	2 wk prior	10 yr yield%	Sept 3	1 wk prior	2 wk prior
India	7.98	7.97	7.98	US	2.72	2.66	2.62

Global Credit markets
US Treasury yields moved down at the beginning of the week as 10 yr even went below 2.5% but later, on better than expected economic data and surge in equity market, long tenure treasury yields moved up. Over the week, 2s moved down 4 bps to 0.52% while 10s moved up 6 bps to 2.72%.

GOI 10-yr Yield movement

Indian Credit Market
The G-Sec yields opened marginally higher at the start of the week and then came down on declining US treasury yields. However, good GDP data, higher inflation numbers, rising US T-bill yields and expectations of G-Sec auction cut-offs pushed up the yields. The 10-yr benchmark traded between 7.93% -7.99% and closed at 7.98%. The liquidity in the system improved. LAF was on average Rs. 16,000 cr compared to Rs 15,000 cr the previous week. Overnight call was in range of 3.20%-5.25%. Next week, the G-Sec market will take cues from expectation of RBI policy meet, advance tax outflow, weekly inflation numbers, G-Sec auctions, liquidity scenario, policy-makers actions and global developments.

RBI auctions
Last week. RBI auctioned T-Bills with lower cut-offs. The 91-Day T-Bill auction worth Rs 2,000 cr saw a cut-off yield of 6.07% (previous: 6.19%). The 182-Day T-Bill auction worth Rs 1,500 cr saw a cut-off yield of 6.37% (previous: 6.46%). On last Friday, the G-Sec auction was fully subscribed. The cut-off yields for the auction of 7.46% GOI 2017 (Rs 4,000 cr), 8.08% GOI 2022 (Rs 5,000 cr) and 8.30% GOI 2040 (Rs 3,000 cr) were seen at 8.01%, 8.03% and 8.40% respectively.
This week, RBI will auction 10 yr SDL worth Rs 5,300 for five states on Sept 7. RBI will also auction 91 day (Rs 2,000 cr) and 364 day (Rs 1,000 cr) T-bills on Sept 8.

Forex Reserves
Reserves went up by $293 mn to $282,842 bn for week ending Aug 27 primarily driven by Foreign currency assets ($279 mn).

US$ Mn.	Change over
US$ Mn.	As on Aug 27, 2010	Last week	End-Mar, 10	End-Dec, 2009
Total Reserves	282,842	293	3,785	–628
Foreign Currency Assets	256,648	279	1,963	–1,935

Forex and Commodities
September 6, 2010

Currency Monitor

Base currency : INR	USD	GBP	EURO	YEN
September 3rd	46.67	71.99	59.82	55.40
1 w prior	46.86	72.67	59.59	55.31
2 w prior	46.58	72.40	59.66	54.58

Source: RBI

Currencies: The euro appreciated 0.2% against the US Dollar to 1.284$/euro on last Friday. The US Dollar recovered 0.3% against the yen to 84.48yen/$, still only slightly above Tuesday’s 15-year low. Overall the trade-weighted index showed a 0.5% decline in JPY on Friday. The currency has risen 13% since April.

The INR strengthened to its highest level in nearly two weeks last Friday helped by some dollar sales by exporters and weakness in the US Dollar ahead of the key non-farm payrolls data. The surge in domestic market last week also supported the INR. The INR appreciated 0.4% over the week to 46.67 per US Dollar. The expectation of stronger growth will prompt investors to increase purchases in domestic market.

Global Commodity Monitor

In USD	Gold	Silver	Crude (WTI)	Copper	Aluminium
September 3rd (EOD)	1,246.75	19.89	74.60	7,646	2,147
1 w prior	1,238.10	19.09	75.17	7,459	2,058
2 w prior	1,227.80	18.00	73.46	7,255	2,040

Source: Bloomberg

Commodities: Experts have remained overweight on Agricultural commodities since the beginning of July due to significant supply risks from adverse weather conditions across the globe. But they remain underweight on oil on global growth momentum slowdown.
The GSCI Agriculture index has gained 30% since July. Last week, Russia extended its ban on grain exports causing a further rally in wheat prices. Significant supply constraints are likely to remain an issue in the softs market, particularly in sugar and cotton, which have seen sharp price rises last week. On the other hand, oil prices have fallen nearly 11% since their peak at the start of August on weaker-than-expected economic data and a stronger dollar. The price of WTI oil for Oct delivery fell 0.6% to $74.60/bbl. Lower growth, fears of deflation in developed markets and investment demand will provide support for gold prices.

* REER is defined as a weighted average of nominal exchange rates adjusted for relative price differential between the domestic and foreign countries, relates to the purchasing power parity (PPP) hypothesis. Here it is basically REER on trade basis for 6 countries.

* Latest available.

For more details on our schemes, click here

By : Geetima Das Krishna - Economic Research, Reliance Capital Asset Management Ltd

* Disclaimer

The information contained herein is the independent and personal view of the author and should not be construed as an investment advise or a standard investment procedure and are not the views of the Company. Neither the AMC, the Trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the authenticity of such information.

TOP