The best stimulus for running ahead is to have something we must run from.
Running away from recession is high on the agenda and the much-hyped fiscal stimulus package is out in the open. If reactions from industry captains are any indication, it has fallen short of expectations. Commerce Minister Kamal Nath said last week that the weekend's fiscal stimulus will be only the first part of a larger package. Hopefully, there will be more such measures in the weeks and months leading up to the general elections, which according to the Chief Election Commissioner could take place in April or May. Meanwhile, the results of the recently concluded assembly elections could have some bearing on the sentiment today. The counting has already begun and the outcome could give some signs as to who could lead the race for the Hot Seat at the Centre in the next 5-6 months.
Coming back to the markets, the fresh round of monetary and fiscal steps taken by the Government might boost sentiment early on today. In addition, the Centre has also cut prices of petrol and diesel. The fact that the US stocks rallied on Friday despite grim jobs data and firm trend across Asian markets would also help the bulls' cause. What is not certain is whether the cheerful mood lasts longer given the strong headwinds confronting the bulls, both local as well as local.
For instance, though the RBI has slashed rates aggressively, only a couple of banks have so far announced reduction in borrowing costs, and that too marginally. Other banks appear to be reluctant to lower lending rates and will first cut deposit rates to trim cost of fund. The same goes for the fiscal stimulus. So far, only auto, steel and cement companies have committed to pass on the benefit from lower excise duty. Others are still on a "wait-and-watch" mode.
Expect a lot of select sector and stock specific action today, based on the benefits accruing to them from the monetary and fiscal stimulus. Overall, we expect the market to remain choppy and rangebound after an initial spurt. Trend in global markets will of course continue to have a say in the market's direction, as will the outcome of state polls. Even if there is a strong rally, one should not get carried away as the fiscal stimulus and rate cuts may not be enough to boost economic growth, especially if the pain in the global markets doesn't show any sign of easing.
The November jobs report confirmed the fears that the US is worse off than expected. The overall picture is that the labor market is deteriorating at the fastest pace in decades. The fourth quarter is likely to be the worst in the cycle, and the first quarter of next year will be pretty bad too. By around the second quarter of next year, the US economy could start to stabilise, still contracting but at a slower pace. Experts don't expect any real improvement until late 2009. The same prognosis holds true for other advanced economies like The UK, Europe and Japan.
FIIs were net sellers of Rs45.2mn (provisional) in the cash segment on Friday while the local institutions pumped in Rs1.84bn. In the F&O segment, foreign funds were net sellers at Rs5.27bn. On Thursday, FIIs were net buyers at Rs4.48bn in the cash segment.
US stocks erased losses and shot higher on Friday as insurer Hartford Financial Services led a rally in the financial space by hiking its earning forecast for the year. Hartford's reassurances helped pull focus from the 553,000 drop in payrolls last month.
The Dow Jones Industrial Average gained 260 points, or 3.1%, to end at 8,637.09, leaving the blue-chip index down 2.2% for the week. The S&P 500 rose 30.85 points, or 3.65%, to 876.07, off 2.3% on the week. The Nasdaq Composite index climbed 63.75 points, or 4.4%, to 1,509.31, down 1.7% for the week.
All three major indices tumbled through the early afternoon, with the Dow losing as much as 257 points after the government reported the worst monthly job losses in 34 years. But stocks erased losses and pushed higher in the afternoon.
In the week ended on Dec. 3, investors pulled roughly $12 billion out of equity mutual funds, after putting $10.4 billion into funds in the previous week. Investors have cashed out of equity mutual funds in 16 of the last 18 weeks.
US employers cut 533,000 jobs from their payrolls in November, the biggest monthly decline since 1974, and far more than the 325,000 cuts that Wall Street economists were expecting.
Meanwhile, September's and October's job losses were revised up, bringing the three-month decline to 1.3 million, the largest three-month job loss total since World War II. So far this year, 1.9 million jobs have been lost, topping the 1.6 million lost in the 2001 recession.
The unemployment rate, generated by a separate survey, rose to 6.7% in November from 6.5% in the previous month. It was short of the 6.8% economists were expecting, but still brought the unemployment rate to the highest level in 15 years.
In other news, a record 1.35 million US homes were in foreclosure in the third quarter, up 76% from a year ago, according to a Mortgage Bankers' Association report released on Friday.
Executives from Detroit's Big Three automakers were back on Capitol Hill on Friday, asking a House panel for a massive loan package to rescue their struggling businesses. Executives from GM, Ford and Chrysler testified before the Senate on Thursday. The Big Three are seeking $34 billion in aid to rescue their struggling industry, up from an initial request of $25 billion last month. Separately, GM said it will lay off about 2,000 workers in the first quarter of next year.
Shares of Hartford Financial surged more than 102% after the insurer boosted its 2008 profit forecast and said that it has enough capital to get through further declines in the stock market. The stock had plunged 92% this year, as of the previous session's close.
Merrill Lynch shares rallied after shareholders approved Bank of America's $21 billion purchase of the bank. The all-stock deal had initially been valued at $50 billion when announced in September, but had been revised lower after Bank of America's stock fell.
Treasury prices slumped, raising the yield on the benchmark 10-year note to 2.70% from 2.56% late on Thursday. The 10-year yield dipped below 3% last week for the first time since the note was first issued in 1962.
The yield on the 3-month Treasury bill fell to 0.01% from 0.015% on Thursday, near the 68-year low of zero hit last month. The bill is seen as the safest place to put cash in the short term. The low yield means investors would rather preserve cash despite little or no interest than risk it in the stock market.
Lending rates showed little improvement. The 3-month Libor rate held steady at 2.19%, unchanged from Thursday. The overnight Libor fell to 0.28% from 0.52% Thursday. Libor is a key bank lending rate.
The dollar gained versus the euro and the yen. COMEX gold for February delivery lost $13.30 to settle at $752.20 an ounce.
US light crude oil for January delivery fell $2.86 to settle at $40.81 a barrel on the New York Mercantile Exchange, ending at a four-year low. OPEC chief says that the cartel will cut production at its Dec. 17 meeting in response to plummeting oil prices.
Gasoline continued its fall to nearly four-year lows, with prices down 1.6 cents to a national average of $1.773 a gallon. Prices have been sliding for 2-1/2 months and have dropped more than $2 a gallon, or 54%.
The week ahead will show if the US market can continue to be resilient, as investors digest reports on housing, inventories, jobless claims, the trade gap, producer prices, retail sales and consumer sentiment. All are expected to show weakness. The week ahead also could bring a breakthrough for the automaker industry.
European shares extended losses on Friday. The pan-European Dow Jones Stoxx 600 index fell 3.8% to 189.84, falling for the third time in five sessions and bringing losses this week to nearly 8%. Overall, the Stoxx 600 index has fallen by around 49% in the last twelve months.
The UK's FTSE 100 closed down 2.7% to 4,049.37, while Germany's DAX 30 lost 4% to 4,381.47 and the French CAC-40 index declined 5.5% to 2,988.01.
Markets ended lower on Friday as traders and investors preferred to book some profits after a sharp rally in previous session. The fall was led by the IT and the metal stocks.
Interest rate sensitive stocks also corrected after rallying throughout the week on expectations of the stimulus package which is likely to be announced in the weekend.
The BSE benchmark Sensex slipped 264 points to close at 8,965 and the NSE Nifty index was down 73 points ending at 2,714.
Market breath was weak, 1,099 stocks advanced against 986 declines, while, 71 stocks remained unchanged.
Among the 30-components of Sensex, 25 stocks ended in the red and 5 stocks ended in the green, the big gainers were Tata Motors (1.4%), Grasim (1%), Maruti (0.5%) and RCom (0.2%).
Shares of Gammon India rallied by over 17% to Rs55 after more than 2.3% of its equity changed hands in two transactions.
~999,850 shares were sold on the NSE and 1mn shares were sold on the BSE at Rs49 per share. The scrip touched an intra-day high of Rs57 and a low of Rs47 and recorded volumes of over 26,00,000 shares on BSE.
Shares of RCom advanced after reports stated that the Communication and IT ministry would refund Rs1.1bn to the company, which it paid as an entry fee for offering dual technology in six circles. The stock was up by over 0.5% to Rs197 after touching an intra-day high of Rs207 and a low of Rs195 and recorded volumes of over 54,00,000 shares on BSE.
Shares of Cipla ended flat at Rs183. Reports stated that the company has received US FDA approval to market multiple strengths of Pamidronate disodium injection. The scrip touched an intra-day high of Rs188 and a low of Rs182 and recorded volumes of over 1,00,000 shares on BSE.
Shares of Wockhardt edged higher by 0.5% to Rs98 after the company announced that its unit received US FDA approval to market a pediatric drug. The scrip touched an intra-day high of Rs104 and a low of Rs98 and recorded volumes of over 33,000 shares on BSE.