Globally stock markets are rallying raising hopes of economic recovery India’s BSE sensex has now overcome the 15,000 mark wile Do Jones industrials climbed above 9,000 for the first time since January. This trend was also now visible across several key commodities including gold, basemetals, pepper and wheat whose prices showed buoyancy and intermittent volatility.
Though the prices of select mass consumption food items such as pulses, fruits, potatoes and rice continued to rise week-on-week, the high base effect kept the wholesale price index (WPI)-based annual rate of inflation below zero for the sixth consecutive week. Weak progress of monsoon has prompted the India Government to stop all exports of non-Basmati rice and wheat, and bear half of the subsidy on diesel offered to farmers by the states.
Allaying fears of shortage of foodgrains, Pawar said, "Stock position is quite comfortable. We have sufficient stock position for 13 months in our kitty."
Precious Metals
The bullion pack traded higher during last week with Spot Gold breaching the $950 mark, on the back of weakness in the US Dollar against other major currencies. The Bullion pack continues to closely track the movements in the currencies markets. Investor interest from exchange traded commodity funds (ETFs) whose demand for gold increased 540 percent between the first quarter of 2008 and the same quarter in 2009 is also likely to be supportive of gold prices. Investment side demand is showing some signs of revival but the jewellery/fabrication demand continues to remain tepid.
The Bullion pack rally now appears to be stalled as Spot Gold is unable to trade consistently above the wall of resistance around $955 - $956 levels as we are witnessing profit booking along with reluctance of bulls to build fresh long positions around these levels. The bullion pack though continues to close consistently above their 10-Day Moving Average indicating that the short-term uptrend remains intact. The Dollar Index (DX) is currently trading around 78.60 levels, very close to its recent low of 78.33 on June 2nd, which is acting as short-term bottom. Trading below this level would lead to a sharp weakness in the USD, in turn supportive for the bullion pack.
Base Metals
The uptrend in base metals has continued on the back of a strong bullish momentum. Nickel and Aluminum have already reached their best levels this year and Copper is not far off from the nine-month highs that it set on Thursday. The rally in base metals indicates that sentiments have improved significantly and are bullish and widespread. Asian equity markets gained in today’s session as wider financial market trends provided a robust backdrop. News of supply constraints have risen this week due to shutdowns at two of Chile’s biggest mines. This factor is supportive for copper prices. Copper price are rising on the back of this news.
Base metal prices could remain upbeat but may come under selling pressure by the end of the week as 1) profit booking after higher prices could come in and 2) prices may come under pressure as we approach the weekend and funds may liquidate their positions prior to the weekend. However, the overall trend is expected to remain bullish on the back of better-than-expected corporate results. The global economy is on its road to recovery but the pace of improvement could be slow. The Federal Reserve Chairman has indicated that the pace of the economic decline in the United States has slowed down significantly and the final demand of production has shown tentative signs of stabilization. But the labour market continues to look weak and the unemployment rate could rise going forward. The currency and equity markets play a crucial role in determining price direction.
Crude Oil
Crude Oil prices rose to three week high in the last week, as surging equity markets amid better earnings reports and weaker dollar against major currencies supported oil prices. NYMEX September crude oil prices rose above $67 per barrel. Rally in oil prices came despite energy data is showing weak demand. Meanwhile OPEC has decided to trim shipments by 1.7 percent in the four weeks ending Aug. 8. OPEC will reduce its exports to 22.39 million bpd from 22.78 million bpd. It is the sixth consecutive drop reported in oil exports.
Crude Oil prices continue to take cues from trend in the equity markets. Recent strong earnings results of corporate have boosted equity market confidence and helped oil prices to gain. But inventory data has shown that gasoline and oil products stocks are at record high levels amid weak demand. Despite US driving season is underway demand for gasoline continues to remain tepid. Although OPEC is deciding to reduce oil exports, it will do little to balance the market. CFTC will have three hearings in next couple of weeks on curbing speculation activity in energy commodities and outcome of this event can impact oil prices. We believe that oil prices are having resistance near $70 mark in the near term and if prices close below $62 levels then can head towards $58 per barrel level. MCX August Crude Oil can get support around Rs3160/3050 levels, whereas resistance is seen at Rs.3325/3380 per barrel.
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