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32 FORTNIGHTLY OUTLOOK FOR COMMODITIES Most international commodities reacted rather sharply to growing debt concerns in the Euro zone, led by Greece, tumbling Asian currencies and the strength in the US dollar index. Despite recent positive US jobs data and US ISM manufacturing data, we haven’t seen any kind of buying in several commodities. Gold prices too tumbled losing its safe-haven stature. Silver prices followed the broad base metals complex, which witnessed their worst quarterly performance since 2008. Crude oil prices, though relatively strong, saw a weak trading fortnight as tumbling equities and easing tensions in the middle-east nations reduced issues related to supply, in turn, leading to a selloff in crude oil. PRECIOUS METALS After a volatile trading session in mid-September, we saw a huge crash in both gold and silver prices this fortnight. After reaching an all-time high of $1,920 per ounce on the COMEX, gold prices corrected by more than 16.5% to trade at $1,600 per ounce. Silver prices were worst hit with prices trading at $26 per ounce from a recent high of $44 per ounce on the COMEX, accounting for a 40% correction in the previous fortnight. However, because of the strength in the US dollar against the Indian rupee, the fall was not as steep as was seen in the international markets. The strength in the US dollar against major international currencies can be majorly attributed to the massive correction in bullion prices. The Greek government said it passed a new budget backed by its international creditors, including larger Beyond Market 10th Oct ’11 deficits than previously forecasted, as the country moves closer to securing an 8 billion euro ($10.7 billion) aid payout needed to avoid default. Prime Minister George Papandreou’s Cabinet also passed 6.6 billion euros of austerity measures recently to cut the 2012 deficit to 6.8% of the GDP, missing the 6.5% goal previously set with the EU, International Monetary Fund and the European Central Bank, known as the troika . Going forward, we expect gold prices to remain buoyant as we have not seen any major liquidation in the ETF holdings. Strong ETF holdings suggest that the investment interest is still strong in the yellow metal. We recommend going long in gold at $1,600-$1,620 per ounce on the COMEX for a target of above $1,720 per ounce on the COMEX until the next fortnight. INDUSTRIAL METALS Prices of industrial metals once again had a very weak session. Copper prices tumbled to trade below $6,800 per tonne on the London Metal Exchange. This is a 35% correction from its all-time high level in February this year. Most industrial metals are set to display their worst quarterly performance since the crisis of 2008. Despite labour unrest in major copper-producing mines, prices failed to sustain upper levels. South African miner Metorex, the takeover target of Chinese metals group Jinchuan said its copper output for the three months to end-September rose 15% from the previous quarter. Global aluminium prices cannot fall much further, with as much as two-fifths of the global production already unprofitable and demand likely to hold up, a senior executive at RUSAL, the world’s largest producer of the metal, said. Aluminium tops the list among base metals in terms of consumption growth prospects, followed by nickel, zinc, copper, lead and lastly tin, according to CRU, an independent research agency. Going forward, we do not expect any respite for base metals. They still look weak based on bleak manufacturing PMI numbers from across the globe. Looking at the price levels and the quantum of demand, we still do not feel that base metals are cheap. We expect copper prices to test $6,500 per tonne to $6,400 per tonne on the LME until the next fortnight. CRUDE OIL Crude oil prices fell sharply from $90 per barrel to $77 per barrel in the last fortnight. The downside was majorly supported by the slowdown in the global economic growth, increasing threats that Greece would default and expectations of low oil demand from the world’s top oil consumer. Meanwhile, Libya too restarted oil production and will start exporting half of its total oil production by the end of November. The projected pace for oil demand is lower this month due to a less optimistic outlook for global economic growth. We expect more weakness to continue in oil prices due to macroeconomic indicators showing weakness around the globe, raising concerns for lower oil demand and improvement in the situation in Libya. Any major upside should be used as a good selling opportunity for the coming fortnighT. It’s simplified...
FORTNIGHTLY OUTLOOK FOR CURRENCIES IInvestors continued to shelter themselves in safe havens like the US dollar and US treasuries in the wake of persistent global growth concerns and the European debt crisis. The US dollar index, a broad measure of the dollar’s performance against six major currencies, rallied to 79.75 from 77. The IMF forecasted the world economies will grow at a much slower pace for another one-and-a-half year. Moreover, no concrete words came from the European Union, causing more pain to risky assets. Macro-economic indicators are showing weakness around the globe. PMI numbers of developed markets are indicating slower growth in all the industries. Unemployment rates in the US and Europe are high at around 9.1% and 10%, respectively. The housing sector weakness continued in the US and UK leading to poor consumer spending. Also, inter-bank lending rates continue to reflect lack of confidence in the money markets. All concerns, coupled with the ongoing dollar squeeze make the dollar a good bet. The dollar index is likely to test the mark of 81 in the coming fortnight. The euro made a nine-month low against the US dollar, the worst hit among all the major currencies. The single currency is under immense pressure on account of contagion fears in the European economies. Investors went short on every rally on the euro, which led to a sharp fall from $1.38 to $1.3160 within two weeks. Though the German parliament passed the enhanced EFSF (European Financial Stability Facility) with a vast majority, the investors remained sceptical about the long-term solutions for European peripheral countries. Higher CPI numbers too did not support the currency and expectations of a rate cut was largely ruled out. The coming fortnight is very crucial for the Euro zone as the markets await the final contours of an enhanced EFSF. On the other hand, troika (IMF, EU and ECB) will decide upon the next tranche of aid to Greece. Currently, investors are very sceptical about the Euro zone and with every disappointment, investors are going short on the EUR/USD pair. With a bearish outlook on the pair, we expect the EUR/USD pair to trade in the range of $1.2850 to $1.3350. The sterling was broadly under pressure in line with the euro. It fell to $1.54 from $1.57 against the US dollar in the last fortnight. Rising expectations of additional quantitative easing weighed on the exchange rate as the Bank of England showed willingness to expand its monetary policy further. The central bank looks set to increase its efforts to stimulate the ailing economy in order to avoid falling back into a recession. Going forward, we may see a sustained downward pressure on GBP/USD against the backdrop of broad strength in the US dollar, coupled with deteriorating outlook for the UK economy. The fundamentals are weak for UK and any rally should be considered as a selling opportunity. The likely range for the pound for the fortnight is $1.55 to $1.52 with a downside bias. The Japanese yen broke the usual appreciation trend towards the end of the fortnight. The US GDP came in better-than-expected at 1.3% for the June quarter. This development gave the US dollar some positive ground against the Japanese yen and the JPYINR pair surged to 77.25. However, quarter-end exporters’ dollar selling came in at these levels. On the economy front, the newest Tankan economic survey for major Japanese industries in Q3 showed welcome improvement in the manufacturing sectors. In the coming fortnight, we expect the Japanese yen to be in the range of 76 to 78. The Indian rupee remained under tremendous pressure, depreciating by almost 8% to 10% in the last month. Capital outflows, coupled with the dollar squeeze in the Asian markets led to a sharp decline in the rupee. The RBI reiterated that it won’t intervene to protect any particular level. However, it will intervene in the Forex market only to control the intraday volatility of the rupee. According to data from SEBI, FII outflows since 20th September is $1,706 million from equity and debt markets. The weakness in rupee is likely to continue in the coming fortnight as the run on the US dollar may lead to further weakness in overall Asian currencies. On the economic front, the current account deficit for June quarter came in at $14 billion against $12 billion in the corresponding period last year. Additionally, fiscal numbers point to a higher-than-estimated fiscal deficit for the current financial year. Both the external and internal factors indicate a weaker rupee in the short-term. The USDINR pair may test the levels of 49.90-50.00 in spoT. Beyond Market 10th Oct ’11 It’s simplified... 33
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Page 4 and 5: 4 PROPHECY OF DOOM The repercussion
Page 6 and 7: 6 The IMF, in its World Economic Ou
Page 8 and 9: 8 There could be further pressure a
Page 10 and 11: 10 Movements In Key Policy Rates In
Page 13 and 14: The Reserve Bank of India has been
Page 15 and 16: Micro analysis. Mega gains. Trading
Page 17 and 18: made it clear that Gujarat is the s
Page 19 and 20: Contact: Sushmita Desai: +91 77380
Page 21 and 22: Honda Siel Cars India Ltd (HSCIL),
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Page 27 and 28: (Janssen) and Lundbeck - that can h
Page 29 and 30: Dena Bank Advances V/s Industry Adv
Page 31: COMMODITY FUTURES Nickel $28,000/to
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Page 38 and 39: 38 Beyond Market 10th Oct ’11 Adv
Page 40 and 41: CHANGE IN PRICE AND OPEN INTEREST 4
Page 42 and 43: 42 MOVERS AND LAGGARDS IN MUTUAL FU
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Page 46 and 47: 46 their homework and wait for clea
Page 48 and 49: LEARN THE ART OF COMMODITY INVESTIN
Page 50: Kunal Shah, Head of Commodity Resea

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