Markets in panic mode

Thursday | June 20, 2013

Withdrawal symptoms seen as Fed prepares to taper

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. 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.

Reena Rohit Chief Manager Non-Agri Commodities and Currencies reena.rohit@angelbroking.com (022) 3935 8134
Angel Commodities Broking Pvt. Ltd. Registered Office: G-1, Ackruti Trade Centre, Rd. No. 7, MIDC, Andheri (E), Mumbai - 400 093. Corporate Office: 6th Floor, Ackruti Star, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 2921 2000 CX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302
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Markets in panic mode

Thursday | June 20, 2013

Withdrawal symptoms seen as Fed prepares to taper

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. 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. Since the spreading of the financial crisis, the world economy has been dependent on boosting measures by central bankers. These actions helped sustain market sentiments even during testing times and hence the withdrawal of the bond-buying program by the Federal Reserve, although expected since the start of the year, is making markets react badly. 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 time has come to reflect over the ideology that has been doing rounds in the global markets, that the role of the US economy will fade in the years to come. Although phenomenal growth has been seen in the emerging and developing economies in the past few years, the sustenance of growth is extremely crucial and with the base and strong platform of the US economy, we feel that the countrys impact on the world markets is of immense importance and its role as a lead market mover is likely to continue in the years to come. The Dollar Index in itself has a very important role in the world markets and when the tapering actually begins, the currency is expected to strengthen, leading to a sell-off across commodities. After the announcement the Dollar Index strengthened sharply by 1 percent and put pressure on commodities like precious metals, base metals and crude oil. What we have seen in yesterdays sell-off, is a knee-jerk reaction to the already expected move. The Indian economy too will face a repercussion of the withdrawal and the markets have seen a major negative reaction and the Sensex and Nifty have slipped sharply by almost 3 percent. A rise in US Treasury yields is seen, while the Indian 10-year benchmark yield is seen declining. The arbitrage opportunity for Foreign Institutional Investors (FIIs) is vanishing in the Indian markets due to the increase in hedging cost as the 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. In general, 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. Page

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Markets in panic mode

Thursday | June 20, 2013

Todays Performance (Intra-Day Performance till 3.00pm IST)

Column1 Dollar Index Rupee Euro Spot Gold ($/oz) MCX Gold (Rs/10gm) Spot Silver ($/oz) MCX Silver (Rs/kg) LME Copper ($/tonne) MCX Copper (Rs/kg) LME Aluminum ($/tonne) MCX Aluminum (Rs/kg) LME Nickel ($/tonne) MCX Nickel (Rs/kg) LME Lead ($/tonne) MCX Lead (Rs/kg) LME Zinc ($/tonne) MCX Zinc (Rs/kg) Nymex Crude Oil ($/bbl) MCX Crude (Rs/bbl) % Chg 0.6 1.9 (0.7) (3.7) (3.5) (5.7) (5.3) (2.1) (0.2) (2.1) (0.3) (3.0) (1.1) (2.7) (1.0) (1.9) (0.1) (1.9) 0.1 LTP 82.13 59.8 1.3193 1301 27102 20.1 41638 6830 407.3 1796 105.3 13812 824.9 2015 120 1829 107.4 96.38 5787 Near-term Trend Up Depreciate Down Down Down Down Down Down Down Down Down Down Down Down Down Down Down Down Down

Gold prices slip below the $1300/mark..further downside seen in todays trade

If Dollar Index strength continues in the near-term, Spot Gold prices could continue to trade with a downside bias

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Markets in panic mode

Thursday | June 20, 2013

MCX Gold Prices fall below Rs27,000.

The stable trend seen post the April crash was due to Rupee depreciation

Indian Equities Correct Sharply

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Markets in panic mode

Thursday | June 20, 2013

World markets over react to the Feds statement

Federal Reserve Chairman Ben Bernanke confirmed that the US economy was growing at a strong pace and that the central bank could now begin with the tapering in 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. The Fed is more confident about its growth than before and this has set the sentiments that improved economic activity would surely lead to a removal of liquidity that boosted asset classes. 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 stabilize. 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.

Gold ETF Holdings fall, investors panic

The yellow metal has slipped below the lows seen in April13 and the reaction of investors has been extremely bearish as Gold ETFs were shunned aggressively and the SPDR Gold Holdings fell below the 1000 mark to 999.56b tonnes yesterday, eroding $23 billion in the funds value. Over the year, holdings in the SPDR Gold Trust are down around 26 percent and further decline could be seen if sentiments continue to remain choppy.

Rupee Depreciation
From curbing gold imports to an increase in duty on gold imports, the government has been making efforts to reduce its high current account deficit and curb depreciation in the currency. Investment inflows are witnessing a reversal and efforts are now being directed towards increase in FDI so that the risk associated with the capital outflows is minimized. However, looking at the current scenario, it is clearly evident that the world markets are impacted by the Feds move and for the second-half of this year, further developments by the Federal Reserve will provide direction to the international markets. Stability in the Rupee is expected after the initial pain is absorbed in the markets and when the Indian economic fundamentals correct. However, this in our opinion will take a long course and until the economic platform looks steady, weakness in the Rupee will continue.

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Markets in panic mode

Thursday | June 20, 2013

Gold has lost its safe-haven status other asset classes eyed
The April13 crash in gold prices in itself indicates that the safe-haven status of the yellow metal almost vanished as investors shunned gold ETFs and moved away from gold. While physical demand had increased due to a sharp correction in prices, what cannot be ignored is the fact that the price decline is continuing steadily. Faith in the commodity has faded and we feel that overall risky assets will also feel the pain, leading to increase in investment towards the fixed income market.

A weaker Rupee worrying factor for commodity imports, inflation risks seen
Cost of commodity imports in India is expected to rise from the current levels despite a correction in commodity prices as the Rupee has weakened sharply, thereby threatening rise in inflation. This will make the government struggle amid a situation of high current account deficit, lower capital inflows and an overall slowing economy.

Higher foreign debt portfolio to affect Indian companies

The current value of the Rupee will lead to sharp increase in the debt costs for companies with a foreign loan portfolio. Hence, a weaker Rupee is impacting the overall Indian economy and performance of markets in the short-term is expected to be negative.

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