Keep your cool

The world belongs to the enthusiast who keeps cool.-William McFee.

The heat was on the bulls last week till the robust IIP numbers came to the rescue. Since then worries seem to have cooled down. In fact, the otherwise warm cities like Mumbai are beginning to feel the chill.



The start today to a truncated trading week is likely to be a positive one. Most Asian markets are trading up. Even the Chinese market has brushed aside concerns about a possible rate hike after inflation surged to a two-year high. Having said that, the pressure is still on the People's Bank of China to jack up rates, especially if inflation doesn't moderate.

Talking of interest rates, the market will closely follow the policy meetings of the RBI (on Dec 16) and the US Federal Reserve (on Tuesday). Also, the latest monthly inflation figures (Dec 14) will be closely tracked.

While the market could well rebound after last week’s carnage, one should remain on guard, as FIIs have been net sellers in the past few sessions. Stick to Large Caps and "quality" mid-caps and avoid "dodgy" counters even if prices seem attractive.

Complacency is the last thing one needs in an uncertain market. So, don't fall for it. Wait for the market to stabilise and stay up for a few sessions before taking a decisive call.

The Nifty posted smart recovery on Friday and closed above 5850 levels. A move past 6000 levels on closing basis in the coming weeks should set the stage for the Nifty to test its all time high of 6357. We expect the Nifty to trade with a positive bias as long it sustains above 5800 levels.

FIIs were net sellers of Rs 12.39bn in the cash segment on Friday, according to the provisional NSE data. The domestic institutional institutions were net buyers of Rs 7.47bn. FIIs were net sellers at Rs 2.88bn in the F&O segment on the same day.

Asian Markets on Monday:

Most Asian stock indices were trading higher in early morning trade on Monday with resources companies pacing the rally after China's policymakers refrained from hiking the key policy rates despite inflation jumping to a 28-month high.

Copper prices reached a record.

The MSCI Asia Pacific Index was up 0.2% at 133.38 as of 10:17 a.m. in Tokyo, with about twice the number of stocks gaining as declining. The measure earlier fell as much as 0.1%.

The gauge fell 0.3% last week amid mounting speculation of a rate hike by China’s central bank. The People's Bank of China instead increased lenders’ reserve ratio requirement.

The Asia Pacific gauge fell 0.6% last month, the first decline in three months, amid concern that China will intensify efforts to curb inflation, speculation Europe will fail to contain the region’s sovereign-debt crisis from spreading and as tensions in the Korean peninsula escalated.

The Nikkei in Tokyo was up 0.1% at 10,226 after touching a low of 10,199. The S&P/ASX 200 index in Sydney was up 0.6% at 4,774 after being as low as 4,749.

The Hang Seng in Hong Kong was up 1.1% at 23,427. The Shanghai SE Composite index in China was up 1.5% at 2,883 after being as low as 2,847 and as high as 2,885.

South Korea’s Kospi Index was up ~0.1% at 1,988. The Taiex in Taiwan was up ~0.5% at 8,759 while the Straits Times index in Singapore added 0.1% at 3,188.

Raw material producers gained the most among the 10 industry groups on the MSCI Asia Pacific Index today after the price of copper closed at a record high in New York as imports by China rebounded from the lowest level in a year.

Copper for three-month delivery on the London Metal Exchange rose as much as 0.8% to $9,065 a metric ton by 9:07 a.m. Singapore time. It reached a record US$9,091 on Dec. 9.

The euro dropped against all of its 16 major counterparts owing to concerns about persistent deep divisions among the EU member governments over how to stem the region’s debt crisis.

The European Union leaders will attend a summit on Dec. 16 and 17. While Italy, Belgium and Luxembourg are favoring euro-area bonds, Germany is opposed to the idea.

The dollar strengthened amid a growing feeling that the US economy is seeing a gradual recovery.

Confidence among US consumers increased in December to a six-month high, the Thomson Reuters/University of Michigan preliminary index of consumer sentiment showed on Dec. 10.

US President Barack Obama last week decided to extend all Bush-era tax cuts to pump=prime the world's largest economy.

The Dollar Index, which tracks the greenback against the currencies of six major US trading partners, added 0.2% to 80.239 today, advancing for a sixth day, the longest streak since June.

Yields on 10-year Treasuries climbed to as much as 3.33% on Dec. 10, the highest since June. The Federal Reserve is set to hold a policy meeting tomorrow as it continues to buy Treasuries to bolster the economy.

The Australian dollar snapped a two-day gain after data showing a surge in Chinese inflation stoked concerns that Beijing will raise interest rates.

China’s consumer prices jumped 5.1% in November, the most since July 2008, the statistics bureau reported on Dec. 11.

The central bank on Dec. 10 announced a 50 basis point increase in reserve ratios, effective Dec. 20.

The Australian dollar was at 98.47 U.S. cents from 98.53 last week. China is Australia’s largest trading partner.

US Markets on Friday:

US stocks closed modestly higher on Friday, with the S&P 500 index scaling a two-year peak at the end of a winning week for Wall Street. Investors welcomed some upbeat economic news and a dividend hike by General Electric (GE).

The S&P 500 index added 0.6% to 1,240.40, its highest close since September 2008. The Dow Jones Industrial Average rose 40.26 points, or 0.4%, to 11,410.32.

The Nasdaq Composite index rose 0.8% to 2,637.54, its highest level since December 2007. The S&P 500 rose 1.3% during the week, while the Dow was up 0.3% and the Nasdaq advanced 1.5%.

On Thursday US stocks had ended mixed, as a stronger dollar weighed on commodity producers, while financial and technology shares gained.

Investors expect US stocks to continue its gradual move up. Next week brings economic reports on retail sales, consumer prices and new home construction.

In addition, the Federal Reserve will release a policy statement on Tuesday. Investors will also digest a report on Chinese inflation due over the weekend.

The dollar gained against the euro and the Japanese yen, but it fell versus the British pound.

The euro fell to US$1.3228, from US$1.3243, as the board of the International Monetary Fund announced plans to delay a vote on the €22.5bn portion of a European bailout for Ireland.

The vote - originally slated for Friday - was postponed to give the Irish parliament time to consider the joint emergency funding package.

Crude oil for January delivery fell 58 cents to end at US$87.79 a barrel.

Gold futures for February delivery fell US$6.40 to settle at US$1,386.40 an ounce.

Bond prices were mixed. The price on the benchmark 10-year US Treasury edged down, pushing the yield up to 3.3%.

GE was the index's biggest gainer, climbing 3.4% after the conglomerate boosted its quarterly dividend 17% to 14 cents per share. GE said it expects to make opportunistic share repurchases next year.

"We are able to increase the GE dividend for the second time this year because of continued strong cash generation, accelerated recovery at GE Capital and solid underlying performance in our industrial businesses through year-end," GE CEO Jeff Immelt said in a statement.

The advance on Friday came after government data showed that the US trade deficit unexpectedly narrowed in October, raising optimism about economic growth early next year.

The US trade balance narrowed to US$38.7bn in October, down 13% from US$44.6bn in September, according to the Commerce Department.

Economists were expecting a deficit of US$44.5bn.

The decline brought the US trade deficit to a nine-month low, as exports jumped 3.2% to US$158.7bn, the highest since August 2008, and imports fell 0.5% to US$197.4bn.

The US trade deficit with China narrowed 8.3%. Exports to China surged nearly 30% to a record US$9.3bn and imports fell slightly to US$34.82bn.

The trade data surprised many people on Wall Street and suggests that the fourth-quarter GDP might look much better than expected.

A separate report on consumer sentiment also came in better than expected.

The University of Michigan/Reuters index of consumer confidence for early December rose to 74.2 from 71.6 last month. Economists had expected a more modest increase to 72.5.

Separately, the People's Bank of China further increased its reserve requirement ratio for banks as part of an ongoing effort to cool inflation and avoid a hard landing. The move stoked speculation that the central bank could hike interest rates next year.

The Chinese central bank said that it would lift the bank reserve requirement ratio by one-half percentage points as of Dec. 20. Banks will now have to set aside 18.5% of their reserves, according to reports.

China's trade surplus fell to US$22.9bn in November, marking a 16% decrease over October's US$27.2bn surplus. Exports soared 34.9% in November, a US$17.3bn increase from the previous month, China's General Administration of Customs said.

On Saturday, China’s statistics agency is due to publish data that economists expect will show accelerating consumer price inflation, bolstering the case for another rate hike. China also remains under pressure to allow its currency to appreciate faster.

Community Health Systems announced on Thursday that it has made an offer to acquire smaller rival Tenet Healthcare for US$6 per share, a premium of 40% over Tenet's closing stock price.

An initial offer to Tenet was rejected and this is Community Health Systems' second attempt.

Shares of Community Health Systems rose 13%, while shares of Tenet Healthcare surged 55%.

Green Mountain Coffee reported fourth-quarter net income of US$27mn, or 20 cents per share, in line with expectations.

But shares fell nearly 10% as investors responded to the company's outlook and decision to no longer provide specific guidance about its K-Cup sales.

European Markets on Friday:

European stocks closed mixed on Friday, with strength in the auto space countered by some weakness in the financial sector.

The Stoxx Europe 600 index closed up 0.1% at 276.20 - its highest closing price since late September 2008.

The European benchmark had closed at a multiyear high in the previous three sessions as well.

The German DAX 30 index closed up 0.5% at 7,006.17. The French CAC 40 index fell 0.02% to 3,857.35. In London, the FTSE 100 index ended up 0.1% at 5,812.95.

Shares of Standard Chartered fell 2.6%, a day after the bank warned of rising costs.

Other European banking stocks were also mostly lower.

The declines came as the Committee of European Banking Supervisors finalized its guidelines on banker pay and bonuses, which include a requirement that top earners receive no more than 20% of their bonus in cash up front.

Among peripheral markets, Spain’s IBEX 35 index fell 0.7% to 10,115.

A day earlier, Moody’s Investor Services placed the debt of several Portuguese banks under review for possible downgrades, which weighed on Portugal’s stock market.

Auto shares gained after Volkswagen AG reported a 12.7% rise in vehicle deliveries to 6.59 million in the first 11 months of the year.

"We will be well above last year’s level and anticipate annual deliveries of more than 7 million vehicles for the first time," said group board member Christian Klingler.

Shares of Volkswagen closed up 3.9% in Germany, while those for BMW AG also added 3.9% and Daimler AG gained 3%.

Shares of Michelin SA rose 1.6% after the company said that it will raise prices of its truck tires in Europe by around 5%, owing to higher commodity prices.

Shares of Peugeot SA and Renault SA gained 1% and 0.8%, respectively.