For the last fortnight, global market sentiments were largely positive in the start of fortnight owing to number of factors. Major factors like US unemployment rate been seen below the US Federal Reserve target of 6.5 percent along with European Central Bank (ECB) cutting the minimum bid rates to 0.15 per cent supported an upside in the markets.
The ECB became the first central bank in the world to charge banks if they holding money which acted as a positive factor. However, in the later part of the fortnight markets began to take correction after unrest in Iraq which threatened to oil supplies.
On the domestic front, markets traded higher due to key rates unchanged by the Reserve Bank of India (RBI) in its monetary policy meeting on 3rd June 2014. Additionally, optimistic retail inflation and industrial production and manufacturing output data from the country led to positivity in the markets. However, during the period, the Rupee depreciated around 0.9 percent owing to robust month end dollar demand from importers. Also, buying of dollars by the RBI pushed the currency lower. However, further downside was cushioned as a result of new agenda by the new Government to focus on bringing down inflation and help economic growth in the country.
In the non-agri commodities space, Gold prices lost momentum and traded below the key $1300 mark in the first half of previous fortnight. Prices were pressurized on ease of geo-political tensions after exit polls in Ukraine gave pro-Western billionaire Petro Poroshenko more than 55 per cent of the vote, a magnate with long experience in government and diplomatic ties to both Russia and the West could help the country troubled by geo-political tension Rising equities in the US and optimism about the US economy also triggered heavy bout of selling.
Expectations of rate cuts by the European Central Bank stoked investor appetite for equities. The economic data released from US also paints a bright picture as orders for US-made durable goods unexpectedly rose in April and consumer confidence perked up in May, supporting views of a rebound in economic growth. On the other hand, prices recovered a by slightly more than 1.5 percent in the second half on bargain buying, coupled with the price decline in the recent weeks after a rally in equity markets might spur purchases. In addition, escalating violence in Iraq has led to situation of civil war appealing bullions safe haven appeal. Iraq's ruling government is calling on the U.S. for military aid, although such is not likely. The fear now is that violence in Iraq could spread to other Arab countries which will be supportive for gold prices.
Spot silver prices also traded higher in line with the strength in the bullion prices. Renewed interest by speculators and short covering were the prime reason behind the rally of more than 4 percent. On the MCX, silver prices rose tracking strong cues from international markets and traded largely on a positive note gaining more than 4 percent.
During the last fortnight, LME Copper prices traded lower by 3 percent on the back of concerns regarding demand for red metal as collateral after probe into warehousing deals at Qingdao port. In addition, World Bank cut the 2014 global growth forecast to 2.8 percent from an earlier estimate of 3.2 per cent which threatened demand outlook. Also, mixed economic data from the US and Euro Zone exerted downside pressure on prices. However, favorable economic data from China coupled with decline of 4 percent in inventories cushioned sharp downside in prices. MCX copper prices fell by 2.4 percent in last fifteen days in line with International markets and closed at Rs.400.85/kg.
Nymex Crude oil prices traded positive in the past fortnight on account of strong Chinese data and US data pointing towards healthy economic growth indicating high demand from the top two oil consumers. The positive data boosted an oil market already bolstered by the loss of crude exports from Libya, where violence and civil turmoil have cut oil output by more than 1 million barrels per day (bpd) from pre-unrest levels. In addition, China's central bank announced a package to relax policy in weaker areas of the economy including farming and small- and medium-sized companies, an action that was expected to promote growth and potentially bolster fuel demand. Prices gained as militants connected to Al-Qaeda increased their control over the city of northern Iraq, hampering repairs to the country's primary pipeline that runs from the Kirkuk oil field to the port of Ceyhan in Turkey.
In the coming fortnight, we expect precious metals and crude prices to head higher as escalation of violence in Iraq and increasing interest by investors as bullions safe haven appeal amid geo-political tensions will act as a positive factor. Also, Libyan supplies remain out of market creating supply side constraint supporting crude prices.
Base metals are likely to trade on a negative note as extensive probing into warehousing deals will lead to concerns regarding the financing deals in the biggest consumer. Also, weak manufacturing data from the US will exert downside pressure on prices.
In the Indian markets, Rupee depreciation will support gains in prices.
Agri commodities basket witnessed a good deal of volatility the last fortnight. There were fears that the newly formed government may take some measures to control the inflation which may include curbs on trading in essential commodities. However, the FMC Chairman statement that there are no plans to stop trading in agri futures put a rest to the rumors proving respite to the markets.
The Indian Meteorological Department (IMD) declared the onset of Southwest Monsoon in Kerala on 6th June, 2014. According to the IMD the cumulative rainfall for the season till 11th June was 44% below normal at 23 mm against a normal of 41 mm.
Among edible oilseeds soybean remained largely under downside pressure on the back of weak demand for the bean due to poor meal export demand. However, forecast of below normal rains coupled with lower seed availability for sowing limited the downside and settled 4.1% lower. Mustard seed also remained weak tracking weak soy bean prices. However, mustard meal export demand as well as declining arrival pressure supported prices at lower levels and settled marginally higher 0.4%. Soy oil as well as CPO remained under downside pressure in the initial part of the fortnight taking cues from weak domestic edible oilseed prices. However, prices recovered towards the end tracking higher soyoil prices on the CBOT coupled with a weak Rupee and settled 3.4% and 3.5% higher respectively.
Among spices, jeera corrected from higher levels on declining overseas demand as exporters waited for a a fall in the prices before they faced fresh orders. However, declining arrivals supported prices at lower levels and settled 1.5% lower. Turmeric also remained under pressure on the back of weak demand to on the back of poor quality arrivals.
However, prices bounced back from lower levels on forecast of below normal rains and chances of a lower acreage this season which may bring down the total output.
Among softs, Sugar gained initially on expectations that the government may increase duty in imports from 15% to 40% to protect the ailing industry coupled with forecast of below normal rains. However, prices corrected from higher levels as the government said that there will be no increase in import duty. Sluggish demand from the domestic as well as overseas markets coupled with selling pressure by the mills to clear their dues also pressurized prices at higher levels and settled 1.6% higher.
Cotton futures also remained weak in the 1st half of the fortnight on weak export demand for cotton yarn as well as an upward revision of India's output by the Cotton Association of India. However, prices bounced back from lower levels in the latter half on demand from the domestic millers and forecast of below normal rains and settled 1.2% higher.
Chana futures also remained under downside pressure on weak sluggish demand coupled with arrival pressure and rising stocks on the NCDEX warehouses. However, value buying supported prices at lower levels and settled 2.8% lower.
We expect most of the kharif commodities to recover from lower levels on forecast of below normal rains this season. Cotton may recover from lower levels on forecast of below normal rains coupled with demand from domestic markets while weak overseas markets may cap sharp gains. Rabi commodities like mustard seed and coriander may gain on declining arrivals. Jeera may find support on expectations of overseas demand emerging at lower levels coupled declining arrivals.
Edible oils like refined soy oil and CPO may find support at lower levels on expectations of recovery in the overseas markets. However, chana may continue to remain under downside pressure on weak demand and arrival pressure. Turmeric may also remain weak on sluggish demand on the back of poor quality arrivals. Soybean may remain mixed as tight supplies may support prices at weak meal exports demand may pressurize prices while weak monsoon may support prices at lower levels.
Prices may take cues from the progress of monsoon in the coming days along with movement in the Indian Rupee. Prices may also take cues from any changes on the regulatory front.