Precariously poised

All progress is precarious, and the solution of one problem brings us face to face with another problem. - Martin Luther King Jr.

The dollar is sliding. Gold is shinning; hitting new highs. Concerns about the state of the US economy are mounting. Expectations are sooner or later, the Fed will have to resort to QE-2 (Quantitative Easing – Part II). Worries over the euro-zone debt may have ebbed but haven’t vanished. Japan is struggling with deflation and a rising currency. The UK is not doing great either amid high inflation and swelling deficit.



Compared to the gloom in the industrialised world, the emerging economies like India, China and others seem to be doing much better. That is the chief reason behind the surge or splurge of foreign money into Indian financial assets this year. We see this trend continuing though the pace of FII inflows could moderate a bit.

Today’s start could well be up again despite the fact that US and European markets declined. Much of Asia is shut for holidays. The market might turn choppy after the recent spurt. Also, with lack of cues from Asia there is a possibility of further sideways consolidation. But, the broad undercurrent for the Indian market remains upbeat.

The FIIs were net buyers of Rs9.14bn in the cash segment on Wednesday (provisionally), according to the NSE web site. Local funds were net sellers of Rs9.73bn. In the F&O segment, the foreign funds were net sellers at Rs39.33bn. The FIIs were net buyers of Rs33.12bn in the cash segment on Tuesday, according to SEBI data.

Important News Snippets For The Day:

ONGC has ventured into shale gas exploration in West Bengal and made two oil and gas discoveries in the Krishna Godavari and Cambay basin.

Suzlon expects Rs70bn investments in Vadodara SEZ.

IOC follow-on-offer expected to hit market in January.

IOC eyes Rs150bn turnover from petrochemicals business.

HPCL eyes E&P assets in developing nations.

GM India launches captive LNG facility, ties up with BPCL, INOX for gas supply, transport.

BPCL to sell some residential properties in Karnataka.

GAIL is looking at setting up gas-based power plants as well as wind and solar energy projects.

ICRA gets licence to operate in Indonesia.

Kotak Mahindra Bank raises deposit rates by 25 bps.

IDFC to raise Rs34bn through infra bonds.

Redington arm acquires 49.4% stake in Turkish firm for Rs1.94bn.

Orient Ceramics to buy 62.92% stake in Bell Ceramics.

CRISIL to acquire Chicagobased KPO for US$12.75mn.

Nestle plans R&D centre in India, to invest Rs2.3bn in centre to be set up at Manesar.

Reliance Retail revives plan to enter cash & carry business.

Union Cabinet is likely to take up a proposal to impose a levy on equipment imports for large power projects.

Federation of Indian Export Organisations (FIEO) has urged the Finance Minister to increase the duty drawback rate.

Bank credit increased by ~Rs315bn in the fortnight ended September 10.

Asian Markets on Thursday:

Asian commodity stocks are up on the back of higher metal prices on the LME, while banks fell after Deutsche Bank cut its earnings forecasts for Morgan Stanley and Goldman Sachs.

The MSCI Asia Pacific (ex-Japan) Index rose 0.1% to 440.26 as of 11:55 a.m. in Sydney, headed for its highest close since June 30, 2008. About 13 companies declined for every 10 that advanced in the MSCI gauge.

The S&P/ASX 200 Index fell 0.1%, and Taiwan’s Taiex index lost 0.4%. Singapore’s Straits Times Index was nearly flat. Malaysia’s FTSE Bursa Malaysia KLCI Index declined 0.4%.

New Zealand’s NZX 50 Index shed 0.1% after a report showed that the nation’s economy expanded more slowly than forecast in the second quarter. Financial markets in Japan, Hong Kong, China and South Korea are closed today for holidays.

In the currency market, the Australian dollar edged further higher against its US counterpart after hitting a 26-month high on Wednesday. The currency, which hit a high of 95.99 US cents overnight, was recently buying 95.64 US cents, from 95.57 US cents late on Wednesday.

The currency has been rising this week amid downbeat comments about the US economy from the Federal Reserve and speculation that the Australian Reserve Bank could hike its key rate as early as October.

The so-called Aussie gained as the spread between 10-year Australian and US yields was near the widest in more than two years. A report showed that an Australian index of leading economic indicators rose in July.

New Zealand’s economic growth unexpectedly weakened even before the nation’s worst earthquake in eight decades. The local currency snapped a four-day rally. GDP increased 0.2% in the second quarter from the previous three months, less than the 0.7% median estimate and the 0.9% forecast by the central bank.

Separately, Chinese Premier Wen Jiabao said that the yuan’s value is not causing the US trade deficit, rejecting Washington's long-standing claim that Beijing is keeping its currency cheap to boost exports.

"The main cause of the US trade deficit is not the exchange rate of the Chinese currency, but the structure of investment and savings," Wen said at a meeting with American business leaders.

China does not pursue a trade surplus intentionally, Wen said.

The yuan is up about 2% against the dollar since June 19, when the central bank said that it would pursue a more flexible exchange rate after keeping the currency at about 6.83 versus the US currency for almost two years.

The yuan was up 0.2% to 6.69 per dollar today, the strongest level since the end of 1993.

US President Barack Obama said on Sept. 20 that the yuan is valued lower than market conditions say it should be and that gives China an advantage in trade.

The US House Ways and Means Committee will meet on Sept. 24 to consider a legislation to force China to raise the value of its currency.

US Markets on Wednesday:

US stocks broke a five-session rally to end lower as investors continued to ponder about the health of the economy and the impact of further monetary easing by the Federal Reserve on growth and earnings.

The Dow Jones Industrial Average ended down 21.72 points, or 0.2%, at 10,739.31, with 18 of its 30 components declining.

The Standard & Poor’s 500-stock index lost 5.51 points, or 0.5%, to 1,134.27, with the financial sector pacing the decline. The Nasdaq Composite index dropped 14.80 points, or 0.6%, to 2,334.55.

US stocks dropped after trading in a tight range of less than 100 points amid sluggish trading volumes. About four billion shares changed hands in New York Stock Exchange composite volume, far below the year’s average of five billion shares.

The US indexes were weighed down by a pullback in technology stocks after a strong month. The Nasdaq has gained 11% so far this month.

US stocks are on track to post the biggest monthly gains since April 2009. So far this month, the S&P 500 is up more than 8%.

There is no major catalyst in the near term to move the US market in either direction. The October monthly jobs report and earnings will be the next big events to watch out for.

US stocks had rallied on Tuesday after the Fed said it would take any action necessary to support the economic recovery, but most of those gains were wiped out amid a downbeat economic outlook.

Gold rallied to a record high, closing at $1,292.10 an ounce, while the dollar extending its fall against its major rivals. Investors are nervous about the prospects of further quantitative easing by the Fed.

The dollar fell broadly after the Fed’s statement heightened concerns about the strength of the greenback. The euro pared gains but added 1.1% to trade at $1.3394 while the yen strengthened to trade at 84.52 yen to the dollar.

The Dollar Index, which tracks the greenback against six other currencies, fell 0.8%.

Crude oil for November delivery, the most active contract, fell 26 cents to settle at $74.71 a barrel.

Gold futures continued their march toward $1,300 an ounce. Gold for December delivery climbed $17.80 to settle at all-time high of $1,292.10 an ounce, after posting a new intra-day record of $1,298.00 earlier.

The yields on the 2-year and 5-year notes eased toward new lows, signaling some strong buying. The price on the 10-year Treasury note was higher, pushing down the yield to 2.56% from 2.62% late on Tuesday.

Adobe shares plunged. Investors were disappointed after the software developer said that sales and earnings for its next quarter might fall short of expectations.

Microsoft shares fell after the software titan said late on Tuesday that it would raise its quarterly dividend payable to shareholders to 16 cents a share from 13 cents a share.

General Mills rose after the cereal maker said first-quarter earnings rose to 70 cents a share from 62 cents a share in the same period a year ago.

BlackBerry maker Research in Motion's shares gained after The Wall Street Journal reported the company could unveil its answer to Apple’s iPad tablet computer as soon as next week.

European Markets on Wednesday:

European stocks fell amid renewed worries about euro-zone sovereign debt and the slowing pace of economic growth in the US. Spain and Italy posted particularly steep declines, their benchmark indexes falling by 1.9% and 1.8%, respectively.

Gold futures, meanwhile, soared to new heights, as investors resorted to flight-to-safety buying.

The Stoxx Europe 600 index declined 1.4% to 261.19. The French CAC 40 index fell 1.3% to 3,735.05 and the German DAX 30 index slipped 1.1% to 6,208.33. The UK’s FTSE 100 index ended down a more moderate 0.4% to 5,551.91.

Surging metal prices triggered a rally in London-listed mining stocks.

Worries about sovereign debt added to the sour mood, with the cost of insuring Irish debt rebounding to a record high and spreads also widening for Portugal and Spain. Portugal failed to raise €1bn and had to settle with €750mn.

Italy’s UniCredit tumbled after it said that Alessandro Profumo has resigned as chief executive. Other banks were also mostly lower.

Deutsche Bank warned that it will likely register a third-quarter net loss due to its planned acquisition of Deutsche Postbank and a substantially weaker result in investment banking.

Spain’s Inditex fell 1.9%. The company reported a surge in first-half profit, but also a slowdown in current trading.

Oil and gas stocks were mostly lower.

Germany’s Infineon Technologies rose after it said fourth-quarter revenue will be better than expected.

Imperial Tobacco shares gained in London. The firm said it expects tobacco revenue to rise 3% for the year.

Daimler dropped after a report - denied by the company - that it had made an approach for the truck and tractor unit of Italy’s Fiat SpA.