All eyes now on US Fed
The Federal Reserve Chairwoman, in her latest speech hinted that recent weak US jobs data and uncertainty surrounding Britain's referendum on EU membership will keep the central bank from raising interest rates next week.
- Jun 15, 2016,
- Updated Jun 15, 2016 5:43 PM IST
In the recent ECB monetary policy meeting, the President commented on the Euro-zone's economy. He warned that Europe was at a risk of suffering lasting economic damage from weak productivity and low growth. Moreover, the European Central Bank began to buy corporate bonds in a bid to kick-start the Euro-zone inflation rate.
The Indian Rupee depreciated by 0.64 per cent in the last fortnight owing to fresh buying of the American currency by importers and banks. Furthermore, domestic markets i.e. Sensex and Nifty traded in green as markets discounted the RBI Monetary Policy Meeting outcome where the Central bank kept the repo rate unchanged at 6.5 per cent. The governor also said that demand conditions were likely to creep in on improving expectations of employment and spending with rural demand aided by a stronger monsoon.
The yellow metal has traded positive by around 5.09 per cent in the past fortnight while MCX gold has gained by around same margin. Prices rallied to a three-week supported by falling world equity markets, and the outlook for US interest rates. The metal held its momentum after surging 1.5 per cent on Wednesday, following below-consensus US payrolls data and comments from US Federal Reserve Chair Janet Yellen which dampened expectations of an imminent rate hike. Investors have almost priced out the chance of a rate increase at the Fed's June 14-15 policy review and reduced the likelihood of a July increase to about 26 per cent. On the contrary, the Perth Mint's sales of gold products fell to the lowest in four years, while silver sales dropped to a nine-month low as consumers awaited a further fall in prices on expectations of an earlier-than-expected US Federal Reserve interest rate hike. Data showed US manufacturing activity expanded for a third straight month in May, but growth in new orders slowed further as factories grappled with sluggish overseas demand and weak capital spending in the energy sector.
Non-Agri Commodities
LME Copper prices fell by 3.9 per cent, the most amongst non agri commodities in the last fortnight as non event at various meetings in the earlier part without any additional stimulus announcements hurt metals. European Central Bank maintained status quo and predicted consumer price growth would remain below target through 2018. Further, Prime Minister Shinzo Abe held back a widely expected fiscal stimulus package. Also, OPEC refrained from changing its oil output policy on Thursday after members failed to agree on a new production ceiling. Furthermore, 39 per cent surge in LME inventories over the past week to above 213,225 tonnes mainly into Asian warehouses, acted as a negative factor. Also, number of Americans filing new applications for jobless benefits declined by 4,000 last week, sign lay-offs remains in check despite a recent slowdown in hiring. Further, European Central Bank President Mario Draghi warned that a lack of economic reforms is making the ECB's job harder and urged European governments to play a supporting role. MCX copper prices fell by 4.1 per cent in the last fifteen days.
WTI oil prices gained by around 7 per cent while Brent crude rose by 3.24 per cent in the past fortnight. MCX oil prices rose by around 10 per cent as rupee weakness of around 1.2 per cent supported the price rise. Brent and WTI had largely traded in a $3-$5 range below $50 for weeks due to uncertainty over oil demand and strong technical resistance for crude at above $50. The latest drawdown in US crude stockpiles offset OPEC's failure to set a ceiling for its output. Saudi's new Energy Minister Khalid al-Falih promised the kingdom would not flood the market with extra oil. His remarks suggested a softening of Riyadh's previous stance, when it rigorously pumped to defend its share of a crude market oversupplied by around 1.5-2.0 million barrels per day. Iran maintained its right to steeply raise crude exports to pre-sanction levels, although Oil Minister Bijan Zanganeh said he didn't think others in OPEC would ramp up supply.
Outlook
Gold prices are now a function of whether the US does the rate hike in June or not. Besides, host of macro economic data released from the US indicates growth in the economy; however, the labour market remains slack as indicated by the recent nonfarm payrolls data.
Nigeria's militant attacks, drawdown in crude inventories for consecutive three weeks in a row and crude trading near the psychological barrier of $50 mark are all push factors driving oil prices in the coming fortnight.
We expect base metal prices to trade lower as markets will be wary ahead of FOMC statement release on 15th June. Also, risk appetite will be under check ahead of BoJ and MPC meetings in Japan and UK respectively.
Agri Commodities
The monsoon has hit the Kerala coast on 8th June is advancing steadily in the south India and covered Kerala, Tamil Nadu, most parts of Karnataka, parts of Rayalaseema and South Coastal Andhra Pradesh in just 3 days. Weather department is expecting that the monsoon may progress rapidly to central, western and northwest in next two week or so. Meanwhile, the kharif sowing has begun in the country and ministry of Agriculture has released its preliminary report on crop coverage on 10th Jun 2016. As per the report, total area cover stands at 71.2 4 lakh hectares (lh) compared to 76.65 lh last year.
During the last fortnight, among agri-commodities, the prices of Chana, cotton, guar gum and mustard seed surges the most on Indian futures exchange. Chana prices jump more than 11.6 per cent while cotton surged by 6.5 per cent mainly due to good domestic demand as supplies are supposed to be limited. Agri-commodities, which made losses during the last fortnight, were soybean, guar seed, Crude palm oil and coriander.
Chana futures for Jul'16 delivery reached Rs. 6,900 per quintal, which is all time high due to increasing demand for chana will be strong in coming months as most importers cutting their shipments on fear that centre may impose stock limits to bring down prices. Moreover, government decided to hike the MSP of kharif pulses and decided to give Rs. 425 per quintal bonus also inducted bullish sentiments into market participants. To control prices exchange has increase 10 per cent special margin for the buy side. Now the total additional and special margin increased to 55 per cent for long side.
Among softs, cotton and kapas prices continue to trade higher since the beginning of April 2016 as demand from textile sector increased due to dwindling supplies of quality cotton in the domestic market. Moreover, in the kharif sowing progress data released by Government pegged only 9.87 lakh hectares in current season compared to 14.30 lakh hectares last year. Similarly, Sugar Futures traded higher during last fortnightly despite imposing stock limit on traders and wholesalers. The Centre is also considering option of lowering the import duty on sugar to boost supplies if prices rise further. Recently government is hinting to impose export duty of 25 per cent on sugar to discourage export from the country and keep sufficient supplies in domestic market.
During the last fortnight, Guar seed and guar gum prices moved in opposite directions as guar gum gained 5.3 per cent while guar seed losses about 1.8 per cent. This indicates that the supplies of guar seed is adequate and crushing units are not interested to buy more from farmers. However, on the other hand the demand for guar gum is improving at the multi year low levels.
Among spices, Jeera and cardamom prices have improved due to export enquiries coupled with dwindling supplies in the physical market. Jeera traded on anticipation of good export demand in coming months, as supplies have been stagnant in last one month or so. Similarly, Cardamom jumped about 4.8 per cent on reports of delay in new season supplies due to dry weather in cardamom growing areas during March - April. the peak supplies may only commence during September after delay of nearly 2 months. Turmeric and coriander traded little sideways during the last fortnight due to adequate supplies in the physical market and sluggish demand among the stockists and traders. Export demand for both turmeric and coriander seems to be going down as the monsoon is progressing.
Among oilseeds, Mustard seed surged more than 5.3 per cent but soybean traded lower. Soybean ease by 2.6 per cent as demand is quite steady on reports of above normal monsoon forecast coupled with lower meal export demand. However, mustard seed traded higher due to anticipation of strong winter demand, as supplies may be deplete in coming months. Edible oil trade on mixed note during last fortnight as market participants were uncertain about the demand supply situation as monsoon progressing well. No decision by government to hike import duty on edible oil also bearish for domestic prices.
Outlook
For the next fortnight, we expect chana and spices like, jeera, turmeric and coriander to trade sideways to higher as monsoon is approaching which might slow physical demand from the stockists. Cotton complex prices may trade higher on reports of increasing in demand from mills lower acreage in coming season and. Oilseed prices trade sideways to lower due to good monsoon forecast and lower crushing demand. Sugar price may trade in the positive bias despite government taking steps to control the prices and increase physical supplies.
The author is Associate Director - Commodities & Currencies Business, Equity Research & Advisory -Angel Broking
In the recent ECB monetary policy meeting, the President commented on the Euro-zone's economy. He warned that Europe was at a risk of suffering lasting economic damage from weak productivity and low growth. Moreover, the European Central Bank began to buy corporate bonds in a bid to kick-start the Euro-zone inflation rate.
The Indian Rupee depreciated by 0.64 per cent in the last fortnight owing to fresh buying of the American currency by importers and banks. Furthermore, domestic markets i.e. Sensex and Nifty traded in green as markets discounted the RBI Monetary Policy Meeting outcome where the Central bank kept the repo rate unchanged at 6.5 per cent. The governor also said that demand conditions were likely to creep in on improving expectations of employment and spending with rural demand aided by a stronger monsoon.
The yellow metal has traded positive by around 5.09 per cent in the past fortnight while MCX gold has gained by around same margin. Prices rallied to a three-week supported by falling world equity markets, and the outlook for US interest rates. The metal held its momentum after surging 1.5 per cent on Wednesday, following below-consensus US payrolls data and comments from US Federal Reserve Chair Janet Yellen which dampened expectations of an imminent rate hike. Investors have almost priced out the chance of a rate increase at the Fed's June 14-15 policy review and reduced the likelihood of a July increase to about 26 per cent. On the contrary, the Perth Mint's sales of gold products fell to the lowest in four years, while silver sales dropped to a nine-month low as consumers awaited a further fall in prices on expectations of an earlier-than-expected US Federal Reserve interest rate hike. Data showed US manufacturing activity expanded for a third straight month in May, but growth in new orders slowed further as factories grappled with sluggish overseas demand and weak capital spending in the energy sector.
Non-Agri Commodities
LME Copper prices fell by 3.9 per cent, the most amongst non agri commodities in the last fortnight as non event at various meetings in the earlier part without any additional stimulus announcements hurt metals. European Central Bank maintained status quo and predicted consumer price growth would remain below target through 2018. Further, Prime Minister Shinzo Abe held back a widely expected fiscal stimulus package. Also, OPEC refrained from changing its oil output policy on Thursday after members failed to agree on a new production ceiling. Furthermore, 39 per cent surge in LME inventories over the past week to above 213,225 tonnes mainly into Asian warehouses, acted as a negative factor. Also, number of Americans filing new applications for jobless benefits declined by 4,000 last week, sign lay-offs remains in check despite a recent slowdown in hiring. Further, European Central Bank President Mario Draghi warned that a lack of economic reforms is making the ECB's job harder and urged European governments to play a supporting role. MCX copper prices fell by 4.1 per cent in the last fifteen days.
WTI oil prices gained by around 7 per cent while Brent crude rose by 3.24 per cent in the past fortnight. MCX oil prices rose by around 10 per cent as rupee weakness of around 1.2 per cent supported the price rise. Brent and WTI had largely traded in a $3-$5 range below $50 for weeks due to uncertainty over oil demand and strong technical resistance for crude at above $50. The latest drawdown in US crude stockpiles offset OPEC's failure to set a ceiling for its output. Saudi's new Energy Minister Khalid al-Falih promised the kingdom would not flood the market with extra oil. His remarks suggested a softening of Riyadh's previous stance, when it rigorously pumped to defend its share of a crude market oversupplied by around 1.5-2.0 million barrels per day. Iran maintained its right to steeply raise crude exports to pre-sanction levels, although Oil Minister Bijan Zanganeh said he didn't think others in OPEC would ramp up supply.
Outlook
Gold prices are now a function of whether the US does the rate hike in June or not. Besides, host of macro economic data released from the US indicates growth in the economy; however, the labour market remains slack as indicated by the recent nonfarm payrolls data.
Nigeria's militant attacks, drawdown in crude inventories for consecutive three weeks in a row and crude trading near the psychological barrier of $50 mark are all push factors driving oil prices in the coming fortnight.
We expect base metal prices to trade lower as markets will be wary ahead of FOMC statement release on 15th June. Also, risk appetite will be under check ahead of BoJ and MPC meetings in Japan and UK respectively.
Agri Commodities
The monsoon has hit the Kerala coast on 8th June is advancing steadily in the south India and covered Kerala, Tamil Nadu, most parts of Karnataka, parts of Rayalaseema and South Coastal Andhra Pradesh in just 3 days. Weather department is expecting that the monsoon may progress rapidly to central, western and northwest in next two week or so. Meanwhile, the kharif sowing has begun in the country and ministry of Agriculture has released its preliminary report on crop coverage on 10th Jun 2016. As per the report, total area cover stands at 71.2 4 lakh hectares (lh) compared to 76.65 lh last year.
During the last fortnight, among agri-commodities, the prices of Chana, cotton, guar gum and mustard seed surges the most on Indian futures exchange. Chana prices jump more than 11.6 per cent while cotton surged by 6.5 per cent mainly due to good domestic demand as supplies are supposed to be limited. Agri-commodities, which made losses during the last fortnight, were soybean, guar seed, Crude palm oil and coriander.
Chana futures for Jul'16 delivery reached Rs. 6,900 per quintal, which is all time high due to increasing demand for chana will be strong in coming months as most importers cutting their shipments on fear that centre may impose stock limits to bring down prices. Moreover, government decided to hike the MSP of kharif pulses and decided to give Rs. 425 per quintal bonus also inducted bullish sentiments into market participants. To control prices exchange has increase 10 per cent special margin for the buy side. Now the total additional and special margin increased to 55 per cent for long side.
Among softs, cotton and kapas prices continue to trade higher since the beginning of April 2016 as demand from textile sector increased due to dwindling supplies of quality cotton in the domestic market. Moreover, in the kharif sowing progress data released by Government pegged only 9.87 lakh hectares in current season compared to 14.30 lakh hectares last year. Similarly, Sugar Futures traded higher during last fortnightly despite imposing stock limit on traders and wholesalers. The Centre is also considering option of lowering the import duty on sugar to boost supplies if prices rise further. Recently government is hinting to impose export duty of 25 per cent on sugar to discourage export from the country and keep sufficient supplies in domestic market.
During the last fortnight, Guar seed and guar gum prices moved in opposite directions as guar gum gained 5.3 per cent while guar seed losses about 1.8 per cent. This indicates that the supplies of guar seed is adequate and crushing units are not interested to buy more from farmers. However, on the other hand the demand for guar gum is improving at the multi year low levels.
Among spices, Jeera and cardamom prices have improved due to export enquiries coupled with dwindling supplies in the physical market. Jeera traded on anticipation of good export demand in coming months, as supplies have been stagnant in last one month or so. Similarly, Cardamom jumped about 4.8 per cent on reports of delay in new season supplies due to dry weather in cardamom growing areas during March - April. the peak supplies may only commence during September after delay of nearly 2 months. Turmeric and coriander traded little sideways during the last fortnight due to adequate supplies in the physical market and sluggish demand among the stockists and traders. Export demand for both turmeric and coriander seems to be going down as the monsoon is progressing.
Among oilseeds, Mustard seed surged more than 5.3 per cent but soybean traded lower. Soybean ease by 2.6 per cent as demand is quite steady on reports of above normal monsoon forecast coupled with lower meal export demand. However, mustard seed traded higher due to anticipation of strong winter demand, as supplies may be deplete in coming months. Edible oil trade on mixed note during last fortnight as market participants were uncertain about the demand supply situation as monsoon progressing well. No decision by government to hike import duty on edible oil also bearish for domestic prices.
Outlook
For the next fortnight, we expect chana and spices like, jeera, turmeric and coriander to trade sideways to higher as monsoon is approaching which might slow physical demand from the stockists. Cotton complex prices may trade higher on reports of increasing in demand from mills lower acreage in coming season and. Oilseed prices trade sideways to lower due to good monsoon forecast and lower crushing demand. Sugar price may trade in the positive bias despite government taking steps to control the prices and increase physical supplies.
The author is Associate Director - Commodities & Currencies Business, Equity Research & Advisory -Angel Broking