Muted start likely…Eyes on RBI

Heat cannot be separated from fire, or beauty from The Eternal. - Dante Alighieri.

The weather may be getting colder but the political scene remains heated in the wake of the 2G spectrum scam. The CBI continues its raid-spree and reports point to some consternation in the Congress-DMK alliance. The winter session of parliament has been a washout. One has to see what fate now awaits the crucial Budget session.



Coming to the market, we see another tepid start on the back of mixed global cues. On Wall Street, the S&P 500 index's six-session winning streak came to an end. The dollar and the Treasury yields gained. European markets fell after Moody’s warned of a possible downgrade of Spain. Asian markets are rather listless. Overall, the global markets seem to be taking a pause after the recent advance.

The important event today will be the RBI’s mid-quarter review. The central bank is widely expected to keep policy rates steady as inflation has moderated. But, it could announce steps to ease the tight liquidity. In summary, the market is likely to remain choppy and rangebound. Stick to a stock centric and guarded approach for the short-term.

The Nifty failed to sustain above the resistance levels of 5930. It is important in today’s trading session that the Nifty does not close below 5840 levels, which could dampen the sentiment a little bit.

Equity shares of Zee Learn Ltd. will be listed today pursuant to a Scheme of Arrangement.

Watch out for Hero Honda amid reports that its Board will meet soon to take a final call on the proposed split with its longtime JV partner Honda Motor. Reports suggest that the Hero Corporate Services Board has already approved the proposed divorce.

Sugar stocks are likely to gain amid reports that the government has allowed exports of the sweetener. The Government has also proposed a Rs 90 per quintal hike on levy sugar.

Oil PSUs will remain in the limelight amid talk of an impending EGoM next week on diesel prices. BPCL has already hiked petrol prices; IOC and HPCL are likely to follow suit. Also, bank stocks will be in focus due to the RBI policy review.

FIIs were net sellers of Rs 876.1mn in the cash segment on Wednesday, according to the provisional NSE data. The domestic institutional institutions were net sellers at Rs 978mn. FIIs were net sellers at Rs 4.44bn in the F&O segment on the same day. The foreign funds were net buyers of just Rs 943mn in the cash segment on Tuesday, according to the SEBI web site.

Asian Markets on Thursday:

Asian stock indices were trading mixed with the regional benchmark falling for a second straight day, led by commodity companies as metal prices dropped. The lingering eurozone debt issue, coupled with the muted economic recovery in the US and Japan were weighing on the sentiment.

Rio Tinto declined in Sydney. Mitsui & Co., a Japanese trader, also fell in Tokyo. Sapporo Holdings Ltd., the maker of Yebisu beer, jumped in Tokyo, the biggest advance on the Nikkei 225 Stock Average.

The MSCI Asia Pacific Index fell 0.4% to 133.48 as of 9:30 a.m. in Tokyo, with about three stocks declining for every two that advanced. All 10 industry groups retreated, led by material companies.

Regional sentiment was subdued after Moody's Investors Service said on Wednesday that it may downgrade its ratings on Spanish government debt due to the country's high demand for refinancing and its problems meeting its borrowing needs next year.

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 nearly flat at 10,312 after touching a high of 10,317 and a low of 10,282. The S&P/ASX 200 index in Sydney was up 0.2% at 4,778 after being as high as 4,784.

The Hang Seng in Hong Kong was down ~0.2% at 22,937 after touching a day's high of 22,992. The Shanghai SE Composite index in China was down 0.2% at 2,905 after being as high as 2,921 and as low as 2,904.

South Korea’s Kospi Index was down ~0.4% at 2,009. The Taiex in Taiwan was up 0.2% at 8,770 while the Straits Times index in Singapore rose 0.2% at 3,152.

US Markets on Wednesday:

US stocks closed lower on Wednesday, with the S&P 500 index snapping its six-session winning streak after Treasury yields inched further up and the dollar advanced amid persistent concerns over the state of the eurozone debt crisis.

The Dow Jones Industrial Average lost 19.07 points, or 0.2%, to end at 11,457.47 after bouncing between small gains and losses for most of the session. Of the 30 components, 21 fell.

Erasing mild gains, the S&P 500 Index was off 6.36 points, or 0.5%, at 1,235.23, with rate-sensitive utilities and financials sectors down the most and consumer staples the strongest of its 10 sectors.

The Nasdaq Composite Index declined 10.50 points, or 0.4%, to 2,617.22.

For every share that gained, nearly two fell on the New York Stock Exchange, where volume topped 1.1 billion.

Investors weighed worries about a possible downgrade of Spain's credit ratings with relatively upbeat US inflation data.

Moody's said that it might downgrade Spain's local and foreign currency government bond ratings, citing high refinancing needs in 2011 among other issues. That sent the IBEX, Spain's main stock index, down about 1.4%.

Other European stocks also closed lower. Britain's FTSE 100 lost less than 0.1%, while France's CAC 40 lost 0.5%. The DAX in Germany fell 0.1%.

Yields on the 10-year note gained 5 basis points to 3.53% as prices fell, giving up earlier gains midday.

The rise in yields helped the dollar head higher.

On Tuesday, the Dow industrials closed at their highest level of the year, with 10-year Treasury note yields surging to seven-month highs.

Inflation expectations expressed in the 10-year Treasury inflation-protected securities, or TIPS, spiked by 10 basis points to 2.36%, the highest since May 3 and the biggest one-day move since September.

The Federal Reserve on Tuesday afternoon reiterated its plan to buy $600 billion in US Treasury notes while leaving its target for the federal funds rate covering overnight loans between banks at nearly zero.

December has been a good month for US stocks, with all the main indices up 5% for the month. Looks like they will see double-digit percentage gains for the year as well.

The dollar gained against the euro, the Japanese yen and the British pound.

Oil for January delivery gained 34 cents to settle at $88.62 a barrel.

Gold futures for February delivery fell $18.10 to settle at $1,386.20 an ounce.

The Senate approved the controversial $858 billion tax package, despite a series of objections from both the left and the right. The measure, which passed 81-19, now advances to the House of Representatives.

The consumer price index ticked up slightly in November.

The consumer price index increased 0.1% month over month in November, slightly less than the 0.2% rise economists were expecting. Meanwhile, the core CPI - excluding food and energy - increased 0.1% in November, in line with expectations.

A monthly survey of manufacturers in New York State from the Federal Reserve Bank of New York showed that conditions improved in December.

The US government reported that factory output climbed for a fifth month in a row, while consumer prices rose 0.1% in November.

Switzerland-based Novartis announced a deal to buy the remainder of eye care company Alcon for $12.9 billion. Shares of Alcon ended 1% higher.

Boston Beer, the brewer of Sam Adams and other beers, raised its earnings forecast for the remainder of this year and into 2011. Shares surged 12%.

European Markets on Wednesday:

European stocks closed down after Moody's said that it was placing Spain's ratings on watch for a possible downgrade, stoking fresh concerns about the worsening sovereign debt situation in the eurozone. The euro too was under pressure on the Moody's announcement.

The Stoxx Europe 600 index dropped 0.4% to end at 276.53, ending a seven-session streak of gains. The benchmark had risen on Tuesday to its highest closing value since September 2008.

The French CAC 40 index shed 0.6% to 3,880.19. The German DAX 30 index slipped 0.2% to 7,016.37, while the UK’s FTSE 100 index fell 0.2% to 5,882.18.

The Moody’s warning sparked profit taking across Europe after the recent winning streak.

In Madrid, the IBEX 35 index fell 1.5% to end at 10,009.80, recovering slightly from an intraday low of 9,944.60.

In Lisbon, the PSI 20 index fell 1%, as Portugal sold 500 million euros ($665 million) of three-month debt at a yield of 3.4% - nearly double the 1.82% paid in early November. Italy’s FTSE MIB index dropped 1.4%.

Retail stocks declined after fashion retailer Hennes & Mauritz released its November sales data. Despite November sales rising 17%, in line with expectations, the outlook for consumers is still grim, analysts said. H&M fell 1.8%.

Moody’s said that Spain’s high refinancing needs in 2011 and the potential for a further rise in the public-debt ratio contributed to its decision to put its rating under review. Spanish bank stocks were lower, while the gap in yield between 10-year Spanish bonds and 10-year German bunds was higher by three basis points.

Moody's announcement on Spain came ahead of an Irish parliamentary vote later on Wednesday on whether to accept an 67.5bn euros aid package from the European Union and the International Monetary Fund.