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Equity & Commodity Markets Weekly Wrap Up.

Commodity Markets

Equity & Commodity Markets Weekly Wrap Up

Commodity Markets end the week with massive gains in practically all Commodities, Especially more so in Gold & Silver. Equity markets ended losing most gains but closed modestly higher. The week gone by saw the Nifty moving up in the initial part of the week once above the crucial 5365 resistance level. However, rough patches were hit & small resistances soon emerged on higher levels, as the Nifty failed to cross the 5450 levels and drifted lower in the latter part of the week. On a WoW basis, the Nifty gained a nominal 0.38%. It was nevertheless the 4th consecutive week of gains for the Equity Markets Index. Reflecting the weakness seen in the latter part of the week, market breadth was negative in three out of the four trading sessions of the week. As said before, a weekly close in Nifty above 5365, a crucial resistance level can be considered mildly bullish for a short term. The Nifty may look forward to rise only on a sustained momentum above 5365 towards a 5626 – 5671 range. Read more in NIFTY Hits Resistance…

Indian Equity & Commodity Markets:

Consumer price inflation in India eased slightly in July this year, though food prices continued to soar both in urban and rural India. The combined index for the both urban and rural fell marginally to 9.86% in July this year and down from Junes 10.02%. The fall was largely on account of a drop in urban inflation that fell to 10.10% from 10.44%. For rural India however, inflation moved up slightly to 9.76% from 9.74%. Delays in execution of mega infrastructure projects have seen a massive Rs 52,446 crore jump in their original cost estimates. Foreign direct investment (FDI) inflows into India’s services sector declined by 18% to $745 million (about Rs 4,134 crore) during April-May this fiscal due to uncertain global economic conditions.

Global Commodity Markets Outlook:

Gold Futures move over $1,650 grabbed the attention of traders as this was the ceiling of the trading range gold was stuck in since May 2012. Comex Gold Futures remain strong till above $1657 with a focus towards $1679.5, $1688.5 & $1702. Comex Silver Futures remain strong till above $30.25 with a focus towards $30.91, $31.36, $31.96 & $32.50. Short position covering may trigger further volatile upsides. Comex Gold Futures for October delivery trading with thin volumes may also keep market movements volatile. After pushing through resistance at the $1,650 an ounce level, basis the December gold futures at the Comex division of the New York Mercantile Exchange see gold prices building on the gains. Gold might try to hold its firmer tone ahead of the Federal Reserve confab next week in Jackson Hole, as Gold bulls hope Fed Chairman Ben Bernanke will tip his hand to show if there is any timeframe for possible stimulus. The Federal Reserve’s meeting next week will be under intense scrutiny by the Commodity Markets after minutes from this month’s Federal Open Market Committee meeting showed the Fed inching closer to possible quantitative easing. Precious metals sector in the Commodity Markets rallied after the FOMC minutes were announced. Market participants took that as a sign that a third round of quantitative easing may finally be arriving. Momentum and technicals are clearly in favor of Gold & Silver. The Big momentum players are yet to enter in a substantial quantum. The real Commodity Markets Big Bullion play will come in only then. Potential for labor problems inSouth Africato spread are likely to keep platinum group metals on edge.

If the Fed does not give any hint or clarity on further easing (QE3) next Friday in the coming week, Gold Prices may sharply correct, but downside momentum may remain short lived since Gold Futures October contract (short positions) shifting to December contracts may provide the necessary support, especially as there are some significant short positions still being unwound in many of these markets. There is such a risk since some U.S. economic data has been better than expected lately (on successful window dressing). Economic data leading up to the upcoming September FOMC meeting will determine what the Fed actually does. As such, caution is the order of the day for the next few weeks. There can be fireworks on the week end as Bernanke’s speech next Friday comes on 31 Aug (which is a contract closing day) with a long weekend holiday for the U.S. markets – Labor Day on Monday 3 Sep. Possibility of QE3 will keep the US dollar under pressure for now, especially with sentiment towards Europe expected to hold up at least until early September. Comex Silver Futures for September delivery entering contract closing week may also keep market movements extremely volatile, as short covering in large upside movements, may trigger further forced buying.

Gold ETFs yesterday expanded their holdings to a new record high of 2,447 tons, while silver ETFs also report further inflows. At 18,164 tons, their holdings are currently at their highest level since May 2011. The exception is palladium, with Bloomberg data showing such ETFs have seen outflows some 23,000 ounces so far in August.

Over all, Commodity Markets may witness Bullishness in most sectors. Base metals have risen despite a softer Chinese economy, reflecting a view that weak data will trigger a more aggressive policy response. Base Metals & Precious Metals have ended the week on a high note & can be expected to ride the wave higher on expected monetary easing from China, Europe & the US. Commodity Market movements can also be highly volatile due to the coming contract expiries by the weekend. The PBOC – People’s Bank of China is expected to reduce bank reserve requirements and interest rates, with the government likely to implement fiscal policies to boost economic growth. However, until actual global stimulus expectations are converted to reality & with China slowing and North American and European demand yet to pick up from its summer lull, the current Base Metals rally looks rather fragile and lacking in fundamental support.

Key Sectoral Indian Equity Markets Movements:

The sectoral indices ended mixed. The top gainers were IT, FMCG, Healthcare and Metals, which rose by 3.3%, 1.8%, 1.1% and 0.9% respectively. The top sectoral losers were Capital Goods, Oil Gas, Consumer Durables and Bankex, which ended lower by 1.2%, 1.2%, 1.1% and 0.7% respectively.

Equity Markets Outlook:

With the Nifty drifting lower, crucial support range to watch next week remains around 5365 to 5338. The uptrend could resume if these support levels hold; else we could see a new correction in the markets & if the same picks momentum, a decline towards a very delicate & an important support of 5167 to 5140 range cannot be eliminated. Nifty may look forward to rise only on a sustained momentum above 5365 towards a 5626 – 5671 range.

Global Markets Key Events:

The Chicago Feds National Activity Indexs three-month moving average, CFNAI-MA3, decreased slightly from -0.18 in June to -0.21 in July–its fifth consecutive reading below zero. Julys CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

The number of Americans filing new claims for jobless benefits unexpectedly rose last week, suggesting the labour market is healing too slowly to make much of a dent in the unemployment rate. Initial claims for state unemployment benefits rose 4,000 to a seasonally adjusted 372,000. That was the highest level in five weeks.

Consumer confidence in the U.S. fell last week to the lowest level since January as Americans held more pessimistic views on their finances. The Bloomberg Consumer Comfort Index decreased to minus 47.4 in the period ended Aug. 19, the sixth consecutive drop, from a minus 44.4 the prior period. The series of declines is the longest since 2008, when the U.S. was in recession.

New U.S. single-family home sales rose in July but prices fell, giving mixed signals about the strength of the country’s budding housing market recovery. The Commerce Department said on Thursday sales increased 3.6% to a seasonally adjusted 372,000-unit annual rate. That matched a two-year high registered in April. The government’s estimates for new home sales are prone to substantial revisions, and June’s sales pace was revised up to 359,000 units from the previously reported 350,000 units.

The FOMC minutes for the July/August meeting revealed that support for a new round of quantitative easing in the short-run is rising within the ranks of the Fed.  While Bernanke & Co. managed to keep their policy powder untapped last time around, they see three factors still posing major downside risks: the sovereign debt crisis in Europe, a global economic slowdown led by China and other BRICs, and the fiscal cliff, which could result in substantial fiscal contraction and a recession in the U.S.

Japan’s leading index for June was revised up to 93.2 from 92.6. Despite an upward revision, the index measuring the direction of the economy in the months ahead, fell for the third consecutive month. The coincident index, which measures the current economic activity, dropped to 94.1 from 95.8 a month ago. But the June reading reflects an upward revision from 93.8. On the other hand, the lagging index edged up to 86.6 from 86.5 in May. The June reading was revised down from 86.9.

Japan’s all industry activity grew 0.2% in June from a month ago, offsetting the 0.2% drop in May, data from the Ministry of Economy, Trade and Industry showed Tuesday. The increase for June matched economists’ expectations. Industrial production rose 0.4% and tertiary industry activity edged up 0.1%. Meanwhile, the index for government services dropped 0.2% and construction activity slipped 0.1%. On a yearly basis, growth in all industry activity eased to 0.5% in June from 3.3% a month ago.

Japanese economy recorded a widened deficit in its merchandise trade balance wider-than-expected in July, where Europe’s debt crises woes dragged down exports alongside with the higher oil prices that boosted imports. The deficit widened to -517.4 billion, compared with a previous revised of 60.3 billion from 61.7 billion, while analysts’ expectations were leading to a deficit of -270 billion.

Australia’s central bank interest-rate-setting committee said at its August meeting that the Australian economy grew near its trend level in the June quarter. Activity continued to vary significantly across industries, the Rerserve Bank of Australia members said, as resource investment evolved as forecast, and as the high Australian dollar and weak housing-market conditions weighed on other areas of the economy.

UK CBI Industrial Trends Survey – Orders fell to -21 points in August, following -6 points the previous month, the confederation of British industry informed on Tuesday. This result is considerably below forecasts of a decrease to -8 points. It is the lowest result registered by the indicator since December 2011 when it stood at -23 points.

On a quarterly basis German GDP rose 0.3% in the second quarter of 2012, following a 0.5% increase in the previous quarter, according to data released today by Destatis. This result is in line with analysts expectations. Year-over-year German GDP n.s.a. increased 0.5% in Q2, after growing 1.7% in Q1. GDP w.d.a. rose 1.0% in Q2, in comparison with 1.2% register the previous quarter.

Germany reported a slight improvement in the Manufacturing PMI for August, which ticked up slightly opposed to the contraction reported in the Services PMI. The London Based Market Economics reported the August Manufacturing PMI, which improved slightly as the index ticked to 45.1 from 43.0 in July. The index remains in contraction with the improvement even as it beat expectations for 43.4. On the contrary, the Services PMI contracted unexpectedly in August as the index dropped to 48.3 from 50.3 in July and also missed estimates for 50.1.

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