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Tuesday, October 07, 2008
Crude drops to 8 month low
Crude drops to eight month low
Crude oil prices fell to lowest levels in almost eight months today, Monday, 06 October, 2008 after stocks at Wall Street just plunged on overall global economic crisis. Prices softened on overall global energy demand.
Crude-oil futures for light sweet crude for December delivery closed at $87.81/barrel (lower by $6.07 or 6.5%) on the New York Mercantile Exchange. Prices fell to a low of $93.88 during intra day trading. Prices reached a high of $147 on 11 July but have dropped almost 50% since then. Till date this year, prices are lower by 8.5%.
At Wall Street today, The Dow Jones Industrial Average fell as much as 800 points to trade below the 10,000 mark as nervousness over the credit crisis spread after the U.S. government's $700 billion bailout and interventions in Europe only seemed to add to investor anxiety. But hopes of a coordinated intervention to stop the bleeding in global markets helped the Dow recoup half of its losses, to close down 369 points, or 3.6%, to 9,955.
At the currency markets on Monday, the dollar rallied against the euro and the British pound but fell sharply against the yen, as the Dow Jones Industrial Average fell below 10,000 points for the first time since October 2004. The dollar index, which tracks the performance of the greenback against a trade-weighted basket of six major currencies, stood at 81.656, up from 80.606 late Friday. Earlier, it rose as high as 81.713.
For the third quarter of the year crude prices ended lower by 28%. This was the biggest quarterly drop since 1991. Before that, crude prices had gained 38% in the second quarter of this year. It was the biggest quarterly increase in nine years. For the month of September, prices registered drop of 13%.
Investors are concerned that a prolonged credit crisis would further undermine an already waning demand for energy as global growth slows down.
Against this background, reformulated gasoline fell 16.9 cents, or 7.6%, to close at $2.0591 a gallon and November heating oil dropped 18.8 cents, or 7.1%, to finish at $2.474 a gallon.
Natural gas was the biggest loser in the energy sector on Monday. November natural gas closed 7.1% lower, down 52.3 cents at $6.835 per million British thermal units on Nymex. Natural-gas futures haven't fallen below $7 since last December.
At the MCX, crude oil for October delivery closed at Rs 4,302/barrel, lower by Rs 118 (2.6%) against previous day’s close. Natural gas for October delivery closed at Rs 334/mmbtu, lower by Rs 14.4/mmbtu (4.1%).
BEML - Sell
We recommend a sell in BEML from a short-term trading perspective. It is clearly visible from the charts of BEML that it has been on a downtrend from its December 2007 high of Rs 1,849. Since then the stock has been forming lower bottoms and lower peaks.
However, during July the stock found support at Rs 600 and made a corrective up move to Rs 845 levels. After encountering resistance around Rs 845 in early September, the stock resumed its downtrend. On October 6, the stock tumbled 10 per cent with above-average volumes, breaking through the key support level of Rs 600. BEML is trading well below its 21- and 50-day moving averages.
The daily and weekly relative strength indices are featuring in the bearish zone. Moreover, the daily moving average convergence and divergence is declining in line with the price in the negative territory. Our short-term forecast for the stock is negative. We expect the stock’s downtrend to prolong further until it hits our price target of Rs 522 in the upcoming trading sessions. Traders with short-term perspective can sell the stock while maintaining a stop-loss at Rs 613.
Markets may bounce back
After falling below the 12,000-level on Monday, Dalal Street is likely to witness a rally tomorrow driven by the Reserve Bank of India's move to slash the mandatory deposit requirement with the apex bank and SEBI easing norms for increasing foreign fund flows.
"The RBI's proactive move to bring in more liquidity into the almost dried up markets may help in stabilising them, which could repose faith of investors.. a rally may happen tomorrow which could stop further decline in stocks," Bonanza Portfolio President Research PK Agarwal said.
The Cash Reserve Ratio would fall to 8.5 percent from October 11 and the move would release about Rs 20,000 crore into the financial system, the RBI said in a statement. This is the first time since June 2003 that the RBI has reduced the CRR. The cut then was 25 basis points. The announcement comes three weeks ahead of a scheduled half- yearly review of the credit policy.
"Markets are likely to open on a positive note tomorrow following RBI's announcement. However, they may not sustain at higher levels, while Banks, Engineering and Infrastructure stocks will be major ones to benefit," Sharekhan Research Head Gaurav Dua said.
Announcing the measure, the apex bank has said that this is only an adhoc measure, a temporary step in view of the global financial crunch. It said liquidity management is to be a priority in the current scenario.
Investors buy gold
Despite a relatively stronger dollar and tumbling crude oil prices, bullion metals ended higher on Monday, 06 October, 2008. The yellow metal gained after the stocks at Wall Street plunged on global economic worries thereby strengthening the yellow metal’s demand as a safe haven for investment. Silver prices also gained today. Investors tend to seek safety in gold when the economy falls into turmoil.
On Monday, Comex Gold for December delivery gained $33 (3.9%) to close at $866.2 an ounce on the New York Mercantile Exchange. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly since then.
For the third quarter, gold prices ended lower by 5.1%. It was the first quarterly loss for the yellow metal since the second quarter in FY 2007. Prior to that, the yellow metal ended second quarter with a marginal gain of 0.7%. For first quarter prices gained 10.7%.
On Monday, Comex silver futures for December delivery fell 0.4% to $11.9 an ounce. Silver had ended month and quarter of September 2008 with a loss of 10%. It ended August with a loss of 2.4% and July 2008 with a gain of 3%. For the second quarter, it had gained a paltry 1.4%. Silver had gained 16% in Q1. Till date, silver has lost 8% this year. The metal also had gained for seven straight years.
Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. On the other hand, a lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies. Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices and vice versa.
At the crude market on Monday, crude futures closed at their lowest level in eight months as concerns over the health of the global economy and a historic drop in the U.S. stock market pushed prices for crude below the $88-per-barrel level. Crude for November delivery closed at $87.81 per barrel on the New York Mercantile Exchange, down $6.07, or 6.5%. It traded as low as $87.80 earlier during the day.
At the currency markets on Monday, the dollar rallied against the euro and the British pound but fell sharply against the yen, as the Dow Jones Industrial Average fell below 10,000 points for the first time since October 2004. The dollar index, which tracks the performance of the greenback against a trade-weighted basket of six major currencies, stood at 81.656, up from 80.606 late Friday. Earlier, it rose as high as 81.713.
At Wall Street today, The Dow Jones Industrial Average fell as much as 800 points to trade below the 10,000 mark as nervousness over the credit crisis spread after the U.S. government's $700 billion bailout and interventions in Europe only seemed to add to investor anxiety. But hopes of a coordinated intervention to stop the bleeding in global markets helped the Dow recoup half of its losses, to close down 369 points, or 3.6%, to 9,955.
Earlier this year, the weakening dollar and higher global demand for raw materials had led to records this year for commodities including gold. Gold reached a record in March as a U.S. housing slump and credit crisis spurred the Federal Reserve to slash borrowing costs. The Federal Reserve halted cuts to its target bank lending rate in April, after slicing it in seven steps to 2% from 5.25% in September.
Gold had witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. Silver had climbed 16% in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.
At the MCX, gold prices for December delivery closed higher by Rs 495 (3.8%) at Rs 13,336 per 10 grams. Prices rose to a high of Rs 13,430 per 10 grams and fell to a low of Rs 12,708 per 10 grams during the day’s trading.
At the MCX, silver prices for December delivery closed Rs 34 (0.17%) higher at Rs 19,095/Kg. Prices opened at Rs 18,955/kg and rose to a high of Rs 19,350/Kg during the day’s trading.
DOW below 10K
It has been another extraordinary and traumatic day on Wall Street, with the Dow Jones industrials plunging as much as 800 points before closing with a loss of about 350.
The catalyst for the frantic selling was investors' growing realization that the credit crisis is likely to take a heavy toll around the world.
And while the Bush administration is starting to implement its $700 billion financial rescue plan, that and steps taken by other governments won't be enough to stop the global spread of credit troubles.
The Dow set a new record for a one-day point drop and also fell below 10,000 for the first time since 2004. But it recovered somewhat in erratic trading as bargain hunting set in. The blue chips closed with a loss of about 350 at the 9,971 level.
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