Market may open lower on weak US economic data

The market may open lower, extending last two days' losses if trading of the S&P CNX Nifty futures on the Singapore stock exchange is of any indication. It indicated that the Nifty could fall 15 points at the opening bell. Asian stocks recovered after initial losses triggered by weak jobs data in the US.



Asian stock markets recovered after initial losses triggered by a poor US jobs report that was the latest sign the US economic recovery is weakening. The key benchmark indices in China, Taiwan, Indonesia, South Korea were up by between 0.11% to 0.79%. But, the key benchmark indices in Hong Kong and Japan were down by between 0.19% to 1.11%.

US stocks fell on Friday 6 August 2010 after government data showed a larger-than-expected drop in July payrolls, giving investors a stark reminder the economic recovery remains slow. But, the stocks sharply pared back losses that had driven the major indexes down 1% or more to their session lows. The US economy lost 131,000 jobs in July more than twice the market expectations. The Labor Department also said Friday the US unemployment rate in July was stuck at 9.5%. And the closely watched private employment number rose less than expected.

The Dow Jones Industrial Average dropped 21.42 points, or 0.20% to 10,653.56. The Standard & Poor's 500 Index shed 4.17 points, or 0.37% to 1,121.64. The Nasdaq Composite Index lost 4.59 points, or 0.20% to 2,288.47.

Focus is now on the Federal Reserve's policy meeting on Tuesday and whether the central bank will consider new stimulus measures in the wake of weak jobs data.

Back home, foreign funds continue to mop up Indian equities. As per provisional figures on NSE, foreign funds bought shares worth Rs 664.94 crore and domestic funds sold shares worth Rs 340.59 crore on Friday, 6 August 2010.

Foreign funds bought equities worth a net Rs 2762.21 crore in the first five trading days this month, till 6 August 2010, absorbing selling of Rs 1129.62 crore from domestic funds, as per data from the stock exchanges.

Foreign funds bought shares worth a net Rs 8320.50 crore in July 2010, absorbing selling by domestic institutional investors. Domestic funds sold shares worth a net Rs 6323.13 crore in July 2010.

Foreign funds had pumped in Rs 7713.97 crore in equities in June 2010, absorbing selling by domestic funds in that month. Domestic funds had dumped shares worth a net Rs 4777.05 crore in June 2010.

On the corporate front, the combined net profit of a total of 2227 companies fell 8.8% to Rs 58,413 crore on 20.5% rise in sales to Rs 7,15,784 crore in Q1 June 2010 over Q1 June 2009.

The government will announce industrial output data for the month of June 2010 on 12 August 2010.

Analysts expect the central bank to raise interest rates by 25 basis points at a mid-quarter monetary policy review on 16 September 2010, to rein in inflation and inflation expectations. The latest data showed the food price index rose 9.53% in the year to 24 July 2010 while the fuel price index climbed 14.26%. Food inflation eased from the week-ago figure of 9.67% and fuel inflation also eased from the previous week's reading of 14.29%. The primary articles index rose 14.36%, compared with the week-ago reading of 14.5%.

The Reserve Bank of India (RBI) at its Q1 monetary policy on 27 July 2010 raised a key lending rate by 25 basis points to curb surging inflation. With growth taking firm hold, the balance of policy stance has to shift decisively to containing inflation and anchoring inflationary expectations, the RBI said at that time. The RBI also signaled its strong preference for tight liquidity, saying it would ensure that excess liquidity in the system doesn't dilute the effectiveness of policy-rate actions.

The surging services industry expanded for the 15th month in July, but at a slower pace than the two-year peak in June, with only growth in input prices picking up speed, a survey showed on 4 August 2010.

The manufacturing expansion picked up pace in July 2010, driven by new orders, stronger factory output and rising prices even as hiring stagnated, a survey showed on 2 August 2010. The HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, edged up to 57.6 in July 2010 from 57.3 in June 2010 when it slipped from a multi-year high.

Most automobiles firms including Tata Motors, Maruti Suzuki, Hero Honda and Bajaj Auto have reported strong sales in the month just gone by.

The vital monsoon rains were 16% above normal in the week to Wednesday, 4 August 2010, the second highest in the current season, the weather office said on Thursday, 5 August 2010. Rains were 38% above normal in the week to 28 July 2010, the highest in this season.

The revival of monsoon rains in the crucial sowing month of July 2010 augurs well for the Indian economy which is driven by strong domestic demand. Over 64.7 million hectares had been brought under the crop cover by 22 July 2010. This is about 5.4 million hectares more compared with 59.3 million hectares planted last year till this date.

An overall 1% above-normal rainfall in whole July has facilitated extensive crop sowing even in the traditionally arid tracks of Rajasthan, Gujarat and Maharashtra. This has facilitated higher area coverage under rain-dependent, but high priced crops like cotton, pulses and coarse cereals. Kharif sowing is expected to be largely over by the middle of this month in most parts of the country.

The cumulative rainfall during the period from 1 June 2010 to 9 August 2010 was 2% below normal. Rainfall over the country as a whole for the second half (August to September) of the 2010 southwest monsoon season is likely to be normal, the India Meteorological Department (IMD) said late last week. Quantitatively, rainfall for the country as a whole during the period August-September 2010 is likely to be 107% of long period average (LPA) with a model error of plus/minus 7%, it said.

The south west monsoon is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector. The weather office expects this year's monsoon rains to be at 102% of the long-period average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

Water level in main reservoirs was at 27% of capacity in the week to 29 July 2010, up from 19% in the previous week. Reservoirs are important for hydropower, which accounts for a quarter of the nation's generation capacity. They also provide water to irrigate winter crops such as wheat and rapeseed.

The Reserve Bank of India (RBI) at its Q1 monetary policy on 27 July 2010 raised its economic growth and inflation forecasts. The RBI raised GDP forecast to 8.5% for the year ending March 2011 (FY 2011), from 8% with an upside bias earlier.

The RBI also raised the baseline projection for inflation based on wholesale price index for March 2011 to 6% from 5.5% indicated in the April 2010 policy statement, taking into account the emerging domestic and external scenario. The RBI said its outlook on inflation will partly be shaped by the distribution of monsoon rains and their impact, as the agricultural harvest will be crucial to easing currently high food prices in the country.

The Reserve Bank of India said the economy could face a significant risk in the form of a slowdown in capital flows, at a time when the current account deficit is widening. In its first quarterly review of monetary policy, the Reserve Bank of India said that a potential slowdown in capital inflows could impact the current and trade deficit. The current deficit is already widening as imports continue to rise with the rebound in economic growth.

The RBI has said that the risk of capital flows runs both ways. Given the present state of the global economy, central banks in advanced economies are likely to maintain accommodative monetary policies for an extended period. With the strong growth potential of emerging market economies, including India, this is likely to trigger large capital inflows. Large capital inflows above the absorptive capacity of the economy will pose a challenge for monetary and exchange rate management. This also has implications for asset prices. In this scenario, a widening current account deficit will help absorb a larger proportion of the inflows.

The key benchmark indices on Friday, 6 August 2010, reversed initial gains as investors preferred profit taking ahead of the weekend. The BSE 30-share Sensex fell 28.84 points or 0.16% to 18,143.99.