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Friday, 03 April 2015 10:42

Coming up: U.S. Consumer Sentiments

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Today University of Michigan will release Consumer Sentiment at 1355 GMT which is expected to improve at 81.2 for March from earlier 80.0.

Consumer sentiments will mainly get support on two bases. First is employment and second in market scenario.

In March employment increased with the beginning of the spring. There was more hiring by service and manufacturing units in last month. Nonfarm employment increased by 192k in March and jobless claims continues to fall.

In the U.S. market there was seen bullish trend as the dollar was becoming stronger with appreciative economic readings in last month. According to IMF forecast the economy is projected to grow at the rate around 2.75 percent in this year and accommodative monetary conditions, a recovering real estate sector, and higher household wealth are expected to support the economy.

Consumers may expect more number of jobs and stable economic condition in coming months. We may see fall in number of consumers having pessimist view about the economy. Dollar may strengthen little if the result comes as expected. Investors may get near term idea regarding the market condition.

 

Friday, 03 April 2015 07:09

Coming Up: German IFO Business Climate

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German IFO Business Climate (BC) will be released at 0900 GMT. According to economists' expectations the index is expected to change a little to 110.7 from 110.6. Let see how strong fundamentals are to support this prediction.

German Flash Manufacturing PMI fell by 1.8 points to 54.7 for this month. Fall in industrial orders and Factory orders brought negative result to manufacturing index and these all together may subdue continuously increasing business climate index of manufacturing, which was seen at 17.7 in January release.

Retail Sales, another base of BC, increased at 1.2% from earlier -1.7%. In last release of BC retailers were optimist about future business development and that came true. This time we may see high expectations of retailers for future demand. In Wholesaling investors are more satisfied by constantly improving result for last six months. This month too we may see positive result in this index.

In construction industry elevated prices of residential property on less supply may support construction index. In last release the index rose to 2.5 from December 1.3.

Improved trade balance to $18.5billion from expectation of $17.3b and stable GDP at 0.4% may back positive expectation for BC. In ZEW Financial Market Survey Germany earned highest points i.e. 8.8 for current economic situation.

Overall there were favorable results of primal indicators which support economist expectation. Germany is among major importers of Copper, Nickel and Aluminum. Better future expectations by investors mean good demand of industrial metal from this economy. These metals prices may also get support if the result comes as per expectation.

 

What can we expected from Flash Manufacturing PMIs of China, U.S. and Germany.

Let start with China. In this month China has shown deterioration in economic health. On 1st Feb Manufacturing PMI fell little to 50.5 from 51. Industrial production slowed down to 9.7% in January. Central bank is likely to tighten monetary policy to support banks, reduce extravagant lending and control debt. Overall this may lead to deceleration in manufacturing activities.

In U.S., Industrial Production fell to -0.3% from December 0.3%. The index fell to nine months low on slowing economic growth. Factory orders for last month fell to -1.5% from previous 1.5% that was also five months low. In the beginning of the month ISM Manufacturing PMI had shown negative result. The index fell to 51.3 from earlier 57.0. Empire State Manufacturing Index also fell by 8.5 points. Dampening leading indicators of manufacturing industry may bring negative result of Flash and Philly Fed Manufacturing Index.

German Flash Manufacturing PMI is expected to fall a little. German Factory orders fell to -0.5%, industrial production contracted and lose momentum gained in December. The index dropped to -0.6% from earlier 2.4%. Weak global economic growth may retard manufacturing activity at Germany.

Volatile emerging markets and unsustainable indications from U.S. economy could affect global economy. Falling metal prices is a sign of contraction in manufacturing industry. We are expecting that this month Flash Manufacturing PMIs of major economies will come negative.

 

 

China has shown good result in trade balance and in Manufacturing PMI this month. The economy is right now off the growth track but policy makers are trying to boost the growth engines again by increasing domestic demand.

At present the economy which was more dependent on investment and export is trying to stabilize on domestic consumption. Today People Bank of China released new loan reported which mentioned that Chinese Banks landed 775 billion Yuan in last month, 275 billion less than previous landing. On the other side money supply has increased by 13.2% indicates increasing spending and investment compare to earlier month.

At China, productivity is decreasing and resources are standing unused. Factories are running at their lower capacities and low demand and high cost may further dampen the progress.

Trade balance data has shown exports improvement to 6.5% in April from 3.5% in March. Now the effect of fake invoices is near to end. Slack in export orders has keep exports little low. But positive signs have started coming from the world second largest economy.

Tomorrow National Bureau of Statistics will release Industrial Production which is likely to improve by 0.1 percentage point compare to previous 8.8%. The Bureau will also release Fixed Asset Investment data which has remained record low in last two months. Falling investment is also a matter of concern for the economy.

Gold is expected to gain as emerging markets have not retreated even after the central banks increased interest rate.

Last month Central Banks of India, Turkey and South Africa raised interest rate to support their currencies and attract foreign funds. But these currencies are still depreciating. Since last week INR fell by 0.27% Turkey Lira down by 0.10% and South African Rand lose 0.29%.

Discouraging economic results of China and Fed tapering have already pulled out millions of dollars from emerging markets. According to IMF forecast China, world second largest economy, likely to grow at the rate of 7.5% and 7.3% in 2014 and 2015 respectively compare to present growth of 7.7%.

Gold has gained by 8.29% in last month compare to its 28% negative return last year. Equity markets of Asia fell on average of 2.9% last week. Bets on Gold and Silver have been increasing. Crude is the third commodity to have high bullish bets on.

It seems like interest rate hike didn support emerging economies but increased borrowing and holding cost of capital. At present physical buying at China has fell on Lunar New Year holidays but from next week we may see upward movement in haven assets.

This week there are important data releases of U.S. are in queue that may further drive precious metals. Gold spot gained by 0.13% to $1246.27 at international market at 0900 GMT.

 

Friday, 03 April 2015 06:48

Brief Note on U.S. Trade Balance

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We are expecting small correction in trade deficit for March. As reported in Factory Orders New orders for manufactured durable goods in March increased $6.0 billion, 2.6 percent to $234.8 billion.

Shipments of manufactured durable goods in March, up two consecutive months, increased $2.5 billion or 1.1 percent to $236.6 billion. New orders and shipment of transportation goods also increased second month consecutively by 4% and 1.1% respectively.

While in ISM released Manufacturing PMI new orders remain unchanged but exports grew by 1.5 percentage points. On the other side imports also increased by 3.5 percentage points.

Moderate commodity prices, especially energy commodity prices, are not likely to create major change in trade balance. S&P GSCI index for energy commodities fell from the month high of 348 to 330 in March.

We may see trade deficit near to $40 billion for March.

DXY index has weakened today before trade balance data. Strong gain in GBP after better than expected Service PMI and gain in EUR with all positive readings had pushed dollar index to 79.103. Little change in trade deficit not likely to support DXY. We may see the index near to 79.20 to 79.25 after the data release.

 

Metal Market remained volatile during the year 2013.In the beginnings of the year metals were on their high level. With the passage of time there was slow downside movement in all metals. GSCI gauge of all commodities fell at the year low on 18th April and on yoy basis the index fell by 2.21%.All base metals reached their lowest level during the period of April to June. Majorly of these metals fell due to slow manufacturing expansion, stable home sales and vehicle sales, and slow industrial growth at large economies of the world.

If we look at the performance of base metals then among the all top loser is Nickel with annual loss of 18.50% while Zinc lost the least by 0.46% last year. In precious metals Silver remained worst performer by falling 35.8% and Gold, the second worst fell by 28.15%.

In 2014 base metals are expected to remain volatile. Copper supply is expected to fall as new mines are opening that may keep inventory in surplus. During first quarter of the year copper is expected to reach near to $7000.In Nickel, to boost value of commodities shipments by promoting domestic processing the world largest mined nickel producer, Indonesia, will ban exports of mineral ores after Jan. 12 that is expected to push prices up near to $14000. Aluminum may gain as vehicle sales and new home sales may increase in New Year and the metal may trade near to $1828. While Zinc and Lead are expected to reach at the price of $2058 and $ 2027.

Fed may trim its bond buying program of remaining $75 billion by the end of the year. It may adversely affect the metal market. Further, if growth at China, world highest metal consumer, slows then it will also contribute to deepening prices.

 
Wednesday, 25 March 2015 18:08

US Manufacturing PMI May Expand Again

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US economy has shown continuous improvement in last 54 months said US supply executives in last PMI release. The economy is expected to grow at the rate of 2.7% in next year compared to present growth rate of 1.7%. Better growth is likely to advance manufacturing activities. Last month US manufacturing index reached at two and half year high at 57.3 while this time, on Jan 2, the index is expected to improve slightly low at 56.8.

New Orders, Production and Employment have grown at faster rate and Industrial production has also increased at the year high of 1.1% for Nov. Tapering is not likely to have major impact on manufacturing activities. We may not see lending problems from banks due to stimulus cut. Growing housing demand is a better example that has shown willingness of people to spend more; it also indicates increased risk appetite.

Asian economies are expected to grow by 7.5% next year, a little lower than its previous records, which may affect demand for US durables and non durables. A Global Purchasing Managers Index from JPMorgan Chase & CO and Markit Economics gained fifth time in a row. Manufacturing expansion was also seen at European market as the index rose more than forecast.

Global markets have shown better results in the last quarter. Global growth is expected to rise at the rate of 2.8% in next year compared to present rate of 2%. Overall, improving market conditions may bring expected result to US PMI.

 

Gold at MCX fall by 0.51% and traded near to ‚28451 on strong equity markets and recovering global economies. Stable rupee has supported Indian stocks to attract foreign investment. BSE Sensex is trading near to 21146 the second straight annual gain. Index gained 9.03% YTD.

Major global exchanges gained substantially this year. US indices- Dow Jones, Nasdaq and S&P rose by 27.36%, 40.42% and 31.27% respectively, at Europe FTSE 100 rose by 14.15% while in Asia Nikkei 225 and Hang Seng rose by 56.72% and 2.55% respectively.Compare to these spectacular rise in equity markets Gold prices slumped by 27.82% or by $464 this year.

Gold ETF also dropped abruptly on Fed stimulus cut, on yoy basis. SPDR Gold shares, highly traded gold backed exchange traded product, plunged by 30.35% on 19th Dec by trading at 52 weeks low of $114.50.ETF Holdings dropped below 5 year average at 56.8m.

During the whole year major events played against the haven asset. In the beginning of the year the metal was in good demand but in mid of the year Fed comments related to tapering made investors bearish (April-May). Then after the US involvement in Syria issue boost the precious metal but again its peaceful solution deepen prices. Further, US Government Shutdown for two weeks put Gold as a better alternative of USD but the Democratic win slide down the metal price. At last Fed tapering for which market was waiting went on that eroded billions of dollars from Gold investment.

As on date Gold oz fell by 0.77% and traded near to $1203.8.Strengthening USD and sustained growth at major world economies may keep prices below $1200/oz in New Year. At MCX we may see Gold near to ‚28000 within this week.

Natural Gas inventory is expected to fall above the five year average decline for this season of 150 billion cubic feet. According to Accuweather Inc temperature at Midwest and Northeast has remained below average for last week.

Energy Information Administration will release inventory data at 10:30 in morning (US time). According to forecast the inventory may fall by 177 billion cubic feet for last week. If we look at the chart it indicates that maximum withdrawal has taken place during the period of December and January.

This year the total US storage has dropped by 13.06% that is a little below twice the five year average of 7.40%.Last week the storage dropped by -285Bcf, the kind of fall was seen last in 1994. Till March, 2014 we may see heating fuel in good demand as temperature is expected to remain low.

According to EIA report about 49 percent of U.S. households use gas for heating. In lower 48 states we may see high demand for this commodity.

Natural Gas is down by 0.058% at $4.378 after US market opening. The commodity may gain after EIA inventory release.

 
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