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Tuesday, July 07, 2009
US stocks manage a turnaround
Defensive oriented stocks help stocks pare losses
US stocks managed to make a late comeback and end in a mixed mode on Monday, 06 July, 2009. Stocks started the day in the red since early morning as economic uncertainty pushed oil prices and market considerably lower on Monday. The consumer staples and utility sectors tried to hold back stocks as much as possible.
The Institute of Supply Management Services index report checked in line with expectations but it showed that all is not that good in the US economy till now. Leadership from defensive-oriented stocks helped the stock market gradually pare its losses. Dow and S&P 500 managed to end in the green. Nasdaq was the only index to end in the red.
The Dow Jones Industrial Average ended higher by 44 points at 8,324. The Nasdaq Composite Index, ended lower by 9 points at 1,787. S&P 500 ended higher by 2.6 points at 898.
Alcoa, Boeing, Bank of America, Chevron and Exxon Mobil were the main Dow laggards today. Merck, American Express, P&G and Johnson & Johnson were the main Dow winners.
Nine of the ten sectors ended in the green today. Technology sector was the only laggard. Google, Apple and Microsoft were the main losers in the technology sector.
Telecom sector gained today despite reports that the Department of Justice has begun a review to determine whether telecom giants like AT&T and Verizon abused their market power in recent years
The Institute for Supply Management reported on Monday, 06 July, 2009 that the the service sectors of the U.S. economy contracted again during June but at a slower pace. The ISM nonmanufacturing index rose to 47% from 44% in May. This is the highest level since last September.
Readings below 50% in the diffusion index indicate more firms are contracting than expanding. The index has been below 50% for the past nine months, but it has been improving since hitting a record low in November. In June, six industries reported growth, while eleven reported contraction.
The new-orders index rose to 48.6% from 44.4% in May, while the employment index also increased, climbing to 43.4% for June from 39.0% the prior month. The prices-paid index rose to 53.7% in June from 46.9% in the previous month.
Crude prices fell substantially lower at Nymex on Monday, 06 July, 2009. Prices fell on worries about the timing of global recovery from the current recession and strong dollar. Crude prices dropped to six week lows today. On Monday, crude-oil futures for light sweet crude for August delivery closed at $63.05/barrel (lower by $2.68 or 4%). Last week, crude ended lower by 3.5%.
In the currency market on Monday, the dollar index, a six-currency measure of the greenback's value rose considerably. The index rose on speculation that leaders from the Group of Eight nations will make efforts later this week to shore up the greenback. The dollar index dropped by 6.4% in the second quarter and is higher by almost 0.5% on a y-t-d basis.
There are no major announcements scheduled in the US market for tomorrow. Alcoa is scheduled to report its latest quarterly results after Wednesday's closing bell. The announcement marks the unofficial beginning of the second quarter earnings reporting season.
Asian stocks open on negative note
Asian stocks declined, led by commodity companies, on lower oil and metal prices.
Inpex Corp dropped 1.5%.
Japanese benchmark index Nikkei fell 38.25 points, or 0.40%, to trade at 9,642.62.
Hong Kong`s Hang Seng index lost 35.92 points, or 0.20%, to trade at 17,943.49.
China`s Shanghai Composite slid 28.30 points, or 0.91% to trade at 3,096.37.
Taiwan`s Taiex index gained 42.31 points, or 0.64%, to trade at 6,692.22.
South Korea`s Kospi index shrank 0.80 points, or 0.06%, to trade at 1,428.14.
Singapore`s Straits Times rose 11.19 points, or 0.49%, to trade at 2,277.28. (7.40 a.m., IST)
Daily News Roundup - July 7 2009
South African telecom major MTN has said that it is still in talks with Bharti Airtel for a potential transaction. (ET)
Total budget expenditure for 2009-10 will be Rs10,280bn, 36% jump over what was budgeted last fiscal. (BS)
The projected market borrowings of Rs4,510bn are about Rs890bn more than what was provided for in the Interim Budget for 2009-10 on February 16. (BS)
Fiscal deficit in 2009-10 is proposed at 6.8 per cent of GDP. (BS)
The total fiscal stimulus for 2008-09 amounts to Rs1,860bn, 3.55 of GDP. (BS)
Fringe Benefit Tax (FBT) and the Commodity Transaction Tax (CTT), besides the 10% surcharge on taxable personal incomes above Rs1mn. (BS)
The FM has abolished the fringe benefit tax (FBT), though some of what the FBT covered (including employee stock option programmes) will now be taxed as perquisites. (BS)
Goods and Services Tax (GST) will be implemented by April 2010. (BS)
Minimum alternative tax (MAT) has been increased to 15% of book profit from 10% earlier and the period allowed to carry forward the tax credit under MAT has been extended from seven years to ten years. (BS)
The government plans to mop up Rs350bn from the auction of 3G spectrum, likely before December end. (ET)
India Infrastructure Finance Company (IIFCL) will pick up infrastructure loans from banks’ books. (ET)
Airports Authority of India (AAI) has been allocated ~Rs992mn for development of airports. (ET)
The government has proposed to move towards a nutrient based subsidy regime (direct subsidy) for fertilisers from the current product pricing regime. (FE)
The government has proposed a disinvestment target of Rs11.2bn for FY10. (ET)
Leading auto manufacturers are set to reduce the prices for passing on the benefit of the excise duty cut on big cars with engine capacities of 2,000 cc and above by Rs5,000 per unit to consumers. (ET)
Government has exempted packaged software from 8% excise and countervailing duty. (ET)
Allocation to the Accelerated Power Development and Reform Programme (APDRP) was Rs20bn, 160% over the budget estimates of 2008-09. (BS)
The National Highways Authority of India (NHAI) received a higher allocation of Rs85.8bn in 2009-10, up from Rs69.7bn spent in 2008-09 in the revised estimates. (BS)
The Railways received Rs50bn over Rs108bn made in the interim Budget for 2009-10 to Rs158bn. (BS)
Allocation for the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), the flagship program for urban infrastructure, has been stepped up by 87% to Rs.128.8bn. (BS)
The FM has extended the tax holiday available for oil production and refining to gas production (under section 80-IB (9) of the Income Tax Act) from oil and gas blocks, which will be awarded under the eighth round of New Exploration and Licensing Policy (Nelp-VIII). (BS)
IIFCL will refinance 60% of commercial bank loans in PPP in critical sectors over the next 15 to 18 months. (BS)
Allocation under Accelerated Irrigation Benefit Programme (AIBP) increased 75% yoy. (BS)
Target for agriculture credit raised to Rs3,250bn in 2009-10. (BS)
Export Credit Guarantee scheme extended till March 2010. (BS)
Customs duty on gold import has been doubled from Rs100/10 grams to Rs200/10 grams. (BS)
Scope for hope!
Hope is tomorrow's veneer over today's disappointment.
The market thumbs down need not disappoint you much. We had warned that having too high expectations from the budget was foolhardy. That’s exactly what has happened. Stocks, bonds and the rupee made evident their displeasure.
Markets are rarely in agreement with the political class, especially when short term steroids are not articulated. Reforms for markets may mean something different than what they mean for the Government. The bottomline is this: don’t despair as the huge dollops of stimulus unleashed could actually stand India in good stead (in the longer term).
Authors of the budget defend the lack of announcements saying it is not necessary to include the same in the budget. So, there is still hope that disinvestment, PSU IPOs and other reforms may be announced in the coming quarters.
It remains to be seen whether the markets regain their composure after the Monday mayhem? Some sort of a comeback is a given after such a big selloff. The global picture is not too encouraging. One will also have to contend with corporate earnings. Be stock specific and stick to quality stuff. The FIIs’ stance, whether you like it or not, will play a major role too.
FIIs were net sellers in the cash segment on Monday at Rs14.83bn while the local institutions poured in Rs8.16bn. In the F&O segment, the foreign funds were net buyers at Rs17.45bn. On Friday, the foreign funds were net buyers at Rs5.68bn in the cash segment. Mutual Funds also pumped in Rs3.04bn on the same day.
US blue chip stocks erased some of the early losses to end marginally higher on Monday, though the technology space did see some selloff.
Stocks slipped through the early afternoon, in line with falling oil prices. A better-than-expected report on the services sector of the US economy did have a bearing on improving the sentiment. But a late pick-up in biotechnology and consumer stocks helped the Dow turn positive.
The Dow Jones Industrial Average gained 44 points, or 0.5%, to 8,324.87. The S&P 500 index rose 2 points, or 0.3% to close at 898.72 and the Nasdaq Composite index fell 9 points, or 0.5%, to finish at 1,787.40.
US market had slipped on Thursday after a weaker-than-expected jobs report fueled worries about the health of the world's largest economy. All financial markets were shut on Friday for the Independence Day weekend. Monday's trading was partly a continued response to the job report.
People want hard evidence that the global recession will end later this year or early next year. The jobs report was an indication that the recovery will take longer than previously anticipated.
US stocks rallied for three months, with the S&P 500 gaining 40%, on optimism that the worst of the recession is over. But stocks have been struggling in the past few weeks on concerns that the stock rally went too far, too fast.
General Motors' (GM) restructuring plan has been approved by a federal judge, clearing the way for the troubled automaker to emerge from bankruptcy. The automaker will be allowed to sell most of its assets to a new company, which should clear the way for it to exit bankruptcy. The judge's ruling came after a three-day hearing ended on Thursday. The company has received $50 billion in taxpayer funds. In exchange, the US government will get a majority stake in the new GM. Other owners include the Canadian government and the United Auto Workers union. GM shares fell 14.4%.
Pepsi and Pepsi Bottling Group will invest an additional $1 billion in Russia over the next three years in an effort to counter weak domestic sales by boosting profits in emerging markets. The two companies have now invested more than $4 billion in Russia.
Rio Tinto sold a division of its Alcan unit for $1.2 billion as it seeks to cut debt after the 2007 purchase of the Canadian aluminum company. The sale of Alcan's packaged food division to US-based Bemis is a cash-and-stock deal.
The Institute for Supply Management's (ISM) services index rose to 47 in June from 44 in May, which still indicated a contracting sector. Economists had forecast a rise to 46.
Energy prices tumbled, with US light crude oil for August delivery falling $2.68 to settle at $64.05 a barrel on the New York Mercantile Exchange.
Treasury prices rose, lowering the benchmark 10-year note yield to 3.51% from 3.49% late on Thursday. Bond markets were closed on Friday.
In currency trading, the dollar gained versus the euro and the yen.
COMEX gold for August delivery settled down $6.70 at $924.30 an ounce.
European stocks extended last week's downward trend with miners and automakers bearing the brunt of the selling. After closing lower for three consecutive weeks, the pan-European Dow Jones Stoxx 600 index finished in the red again, down 1.1% to 201.92.
The UK's FTSE 100 index fell 1% to 4,194.91, while Germany's DAX index was down 1.2% at 4,651.82 and the French CAC 40 index shed 1.2% to 3,082.16.
Indian markets ended with a deeper dent on Monday as the Union Budget failed to meet market expectations. The Sensex posted its worst performance on a Budget day in over a decade as benchmark government bond yield crossed 7% after the finance minister announced much higher fiscal deficit target for the year.
Budget which was expected to be a dream budget turned into a nightmare for traders and investors on Dalal Street. It was unabated selling as the key indices plummeted post the presentation of the Union Budget in the parliament on the back of huge volumes. Total market turnover crossed Rs1 lakh crore.
Commenting on the stock market’s negative reaction to the Union Budget, Finance Minister Pranab Mukherjee has said the market may have expected too much from the country’s annual financial document. The stock markets slipped sharply just as the finance minister progressed into his budget speech in Parliament on Monday and was at one point 5% down, mainly due to the lack of any major announcements.
"I had at the start of my speech said ‘One budget speech won’t address all the problems [that the economy faces]," Mukherjee said in an interview to Lok Sabha TV, adding that the budget was not the only instrument to address the economy’s issues.
The finance minister added that it was not possible to set a divestment target.
On the fiscal deficit (raised to 6.8% from 6.2% earlier), the FM said it was possible to improve the fiscal deficit target in the next budget.
"I had at the start of my speech said ‘One budget speech won’t address all the problems [that the economy faces]," Mukherjee said
The BSE Sensex plunged 870 points or 5.8% at 14,043 after touching a high of 15,098 and a low of 13,959. The index had opened at 14,962 against the previous close of 14,913.
The NSE Nifty plummeted 258 points or 5.8% to shut shop at 4,166.
Asian markets ended in the red; the Nikkei index in Japan slipped 1.4% at 9,680, Australia's S&P/ASX ended down 1.1% at 3,783. Hang Seng index fell 1.2% at 17,979.
Elsewhere in the Europe, stocks were trading in the red. The FTSE index was down 1.3% at 4,183. The DAX index was down 1.6% at 4,629. CAC 40 index was down 1.6% at 3,068.
Coming back to India, among the BSE Sectoral indices BSE Bankex index was the top loser losing 8.1%, followed by the BSE Realty index down 7.2%, BSE Capital Goods index fell 7% and BSE Metal index declined 6.5%.
The BSE Mid-Cap index ended in the red down 5.10.8% and BSE Small-Cap index fell 4.5%.
In the Sensex, the major losers were Reliance Infra, ICICI Bank, JP Associates, Tata Steel, HDFC, L&T, SBI and DLF.
On the other hand, ITC and Hindustan Unilever were among the top gainers.
Among the big losers in the broader market were Educomp, Areva, Central Bank, IFCI, MTNL, RCF, APIL and IDBI Bank.
Outside the frontline indices, the top gainers included Titan and Asian Paints.
Shares of ITC advanced by 3% to Rs199 after the after the government left taxes on cigarettes unchanged for the year ending March 31. The scrip touched an intra-day high of Rs202 and a low of Rs187 and recorded volumes of over 2.2mn shares on BSE.
Shares of Reliance Industries slipped by over 6.5% to Rs1893. The scrip touched an intra-day high of Rs2051 and a low of Rs1865 and recorded volumes of over 2.01mn shares on BSE.
The stock came under pressure after the Finance Minister Pranab Mukherjee said that the Government proposes to raise the minimum alternate tax (MAT) to 15% of book profit. He also said that the tax credit on MAT will be carried forward to 10 years.
The announcements on MAT were made by Mukherjee while presenting the Union Budget for the fiscal year 2009-10.
Shares of Titan Industries surged by over 4% to Rs1237 after the Finance Minister announced that branded jewellery would be fully exempted from excise duty. The scrip touched an intra-day high of Rs1297 and a low of Rs1195 and has recorded volumes of over 35,000 shares on BSE.
Looking at the heavy selling on Dalal Street post Budget presentation, the Nifty seems to be in an oversold position. Markets might stage a comeback on Tuesday provided firm cues from the global markets. However, one cannot rule out further selling.
Daily Technical Analysis - July 7 2009
There was a sea of red splashed across trading screens on Monday as the Sensex and Nifty nose-dived 5.8 per cent. Market participants went on a selling spree, irked at the continuation of STT, increase in MAT and lack of policy direction in the Budget document.
Sensex (14,043.4)
Short term
The giant engulfing candle in the daily candlestick chart has made the short-term trend in Sensex turn downwards. The daily momentum indicators too corroborate this view. The short-term support that Sensex is clinging to is 14,016 that was the trough formed on June 23. A close below this level will take the index to the 50-day moving average at 13470 and the floor of the gap formed after the election result at 13479. In other words, despite the sell-off on Monday, the index is approaching key support zone from where a short-term rebound is possible. Strong close below 13500 is needed to make the medium-term view negative in the index.
Medium term
As indicated in the index outlook column published on July 5, the medium-term trend is under pressure. As the index is reversing from the key intermediate resistance zone between 15200 and 16200, a medium-term peak could have been formed at the June 11 peak of 15600. Failure to move beyond 15000 over the next two weeks will confirm this view.
Nifty (4,165.7)
Nifty too recorded a bearish engulfing candle in the daily chart and it closed below the recent trough at 4143 that is negative from a near-term perspective. But the index has strong support at 4100. Close below this level is needed to pull Nifty to 3884 or 3544 over the medium term. Close above 4500 is needed to make the short-term view positive in Nifty.
via BL
Turnover gallops
RIL July 2009 futures at premium
Nifty July 2009 futures were at 4154, at a discount of 11.70 points as compared to the spot closing of 4165.70. Turnover in NSE's futures & options (F&O) segment galloped to Rs 96,656.53 crore from Rs 54,841.47 crore on Friday, 3 July 2009.
Reliance Industries July 2009 futures were at a slight premium at 1,896.65 compared to the spot closing of 1893.15.
State Bank of India July 2009 futures were at discount at 1638.85 compared to the spot closing of 1653.50.
Bharat Heavy Electricals July 2009 futures were at discount at 2097.70 compared to the spot closing of 2100.50.
In the cash market, the S&P CNX Nifty lost 258.55 points or 5.84% at 4165.70 following a disappointment from Union Budget 2009-2010 which lacked big bang economic reforms.
Precious metals continue to drop
Yellow metal drops to lowest level in two weeks
Precious metal prices fell substantially at USA on Monday, 06 July, 2009. Slipping crude price and strong dollar snatched away quite some shine from precious metals by decreasing their appeal as a hedge against inflation. Gold fell to its lowest levels in two weeks.
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 and also vice versa.
On Monday, gold for August delivery ended at $924.3, lower by $6.7 (0.7%) an ounce on the New York Mercantile Exchange. Last week, gold ended lower by 1.1%. Year to date, gold prices are higher by 4.6%.
For the month of June, 2009, gold ended down by 5.4%. Gold had ended the month of May higher by 9.8%. It was the highest monthly gain registered by gold in six months. For the second quarter, gold ended higher by 0.5%. The metal had gained 4.3% in the first quarter of this year.
On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped somewhat (11%) since then.
On Monday, Comex silver futures for September delivery lost 17 cents (1.3%) at $13.238 an ounce.
Silver ended 13% down for the month of June, 2009. For the month of May, silver gained 26.6%. It was the biggest monthly gain for silver in more than two decades. For second quarter, silver rose 4.5%. Year to date, silver has climbed 17.3% this year. For 2008, silver had lost 24%.
In the currency market on Monday, the dollar index, a six-currency measure of the greenback's value rose considerably. The index rose on speculation that leaders from the Group of Eight nations will make efforts later this week to shore up the greenback. The dollar index dropped by 6.4% in the second quarter and is higher by almost 0.5% on a y-t-d basis.
Crude prices traded substantially lower today due to the strong dollar. Crude oil prices traded lower by 4% around $64/barrel.
In 2008, gold prices ended higher by 5.5%. The dollar index had gained 12% that year.
At the MCX, gold prices for August delivery closed higher by Rs 55 (0.44%) at Rs 14,519 per 10 grams. Prices rose to a high of Rs 14,560 per 10 grams and fell to a low of Rs 14,408 per 10 grams during the day's trading.
At the MCX, silver prices for September delivery closed Rs 156 (0.72%) higher at Rs 21,820/Kg. Prices opened at Rs 21,505/kg and rose to a high of Rs 21,899/Kg during the day's trading.
Crude at six week lows
Price drops as traders mull over global recovery timing
Crude prices fell substantially lower at Nymex on Monday, 06 July, 2009. Prices fell on worries about the timing of global recovery from the current recession and strong dollar. Crude prices dropped to six week lows today.
On Monday, crude-oil futures for light sweet crude for August delivery closed at $63.05/barrel (lower by $2.68 or 4%). Last week, crude ended lower by 3.5%.
For the month of June, 2009, crude ended higher by 5.5%. In May, crude had registered the largest monthly gain in a decade rising 30%. For the second quarter, crude ended higher by 40%. Crude prices had rallied 11.3% in the first quarter of 2009.
Oil prices had reached a high of $147 on 11 July, 2008 but have dropped almost 61% since then. Year to date, in 2009, crude prices are higher by 43%.
In the currency market on Monday, the dollar index, a six-currency measure of the greenback's value rose considerably. The index rose on speculation that leaders from the Group of Eight nations will make efforts later this week to shore up the greenback. The dollar index dropped by 6.4% in the second quarter and is higher by almost 0.5% on a y-t-d basis.
The Institute for Supply Management reported on Monday, 06 July, 2009 that the the service sectors of the U.S. economy contracted again during June but at a slower pace. The ISM nonmanufacturing index rose to 47% from 44% in May. This is the highest level since last September.
Also at the Nymex on Monday, August reformulated gasoline fell 5.04 cents, or 2.8%, to $1.7404 a gallon and August heating oil dropped 7.5 cents, or 4.4%, to $1.6266 a gallon.
August natural gas futures dropped 12.8 cents, or 3.5%, to $3.487 per million British thermal units.
Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex.
At the MCX, crude oil for July delivery closed at Rs 3,117/barrel, lower by Rs 46 (1.4%) against previous day's close. Natural gas for July delivery closed at Rs 169.9/mmbtu, lower by Rs 5/mmbtu (2.8%).
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