WEEK ENDING DECEMBER 13, 2013
Global equity markets fell this week amidst increased uncertainty about US monetary policy, ahead of
FOMC meeting next week. The MSCI AC World Index declined 1.50% led by sharp decline in European
markets.Yields on global benchmark Treasury bonds increased and prices fell as agreement on US budget
added to expectations of an early start to stimulus unwinding in the US. Bonds however pared losses at
close of week on soft US inflation data and increase in unemployment claims. Concerns that colder than
usual weather conditions will impact supply pushed up natural gas prices and the Reuters Jefferies CRB
index closed up 0.36%. In currency markets, the yen rebounded towards the close of week while the pound
slid. Brazil real strengthened on policymaker comments the currency intervention programme will extend
• Asia-Pacific: Weaker yen bolstered earnings growth prospects for exporters and helped Japanese markets
close in the positive territory, while most other markets in the region fell. Economic data out of Japan
was also quite positive - industrial production increased 1%mom in October and core machinery orders
rebounded. China industrial production slowed, but exports and retail sales recorded solid growth in
November. Australia’s economy added 21000 jobs in November led mainly by increase in full-time
employment. Protests continued in Thailand even as officials dissolved Parliament and said general
elections will be held in February.
• Europe: Regional equity markets declined on investor caution ahead of Federal Reserve meeting next
week and mixed economic news flow. Euro zone October industrial output contracted 1.1%mom –
Italy and Estonia were the only countries to post an increase in production. In contrast, UK industrial
production expanded 0.4% and sustained housing demand helped home prices move up further last
month. Greece posted a budget surplus of $3.7 bln for the first 11 months of 2013 and is expected to
exceed its annual fiscal targets. Russia kept policy rates unchanged and extended liquidity provisions to
2014 to ease cash crunch. Romania, Poland and Czech Republic reported improvement in current
• Americas: US and Canada equity indices retreated as investors digested fresh economic and policy
news flow and weighed possibility of Fed tapering next week. US policymakers reached a
compromise on spending cuts and approved a two-year federal budget bill. US retail sales grew by
0.7%mom in November, but weekly jobless claims unexpectedly rose by 68,000. Financial regulators
approved the Volcker Rule, a key part of the Dodd Frank Act this week. S&P downgraded Venezuela
sovereign rating to B-. Mexico equity markets cheered passage of oil reform bill in the Senate. The
bill seeks to boost oil production, expand private participation in the sector and provides for creation
of a sovereign wealth fund that will invest oil revenues for the long term. Sysco is acquiring rival
company US Foods for $3.5 bln.
MSCI AC World Index
FTSE Eurotop 100
MSCI AC Asia Pacific
India - Equity
Indian markets climbed to record highs early in the week on favourable state assembly poll results.
However, sustained worries about Fed tapering and weak macro-economic data weighed on investor
sentiment later in the week and markets closed in the negative territory. IT and FMCG stocks did well
while power and capital goods indices underperformed broad markets. FII inflows aggregated $238 mln
for the first four trading days of the week. On the corporate front, Torrent Pharmaceuticals agreed to buy
out peer Elder Pharmaceuticals branded domestic formulations business in India and Nepal for over Rs.
• Macro: India’s trade deficit narrowed from $10.7 bln to $9.2 bln in November as decline in imports (16.4%yoy), both oil and non-oil, helped more than offset negative impact from slower growth in exports
(up 5.86%yoy compared to 13.5%yoy last month).
Manufacturing PMI, lhs
Core infra growth, rhs
Source: CEIC, Bloomberg Finance LP, Deutsche Bank
Latest industrial production data was below market expectations – industrial output declined by 1.8% in
October, nearly reversing the 2% growth recorded in September, on high base effect and weakness in both
mining and manufacturing segments. One of the positive points in the report was 2.3%yoy expansion in
Indian economic data remains mixed and points towards an uneven and gradual recovery in the economy,
helped mainly by positive contribution from exports and agriculture sectors.There exist potential headwinds
to higher growth from a cut in government spending as it seeks to achieve fiscal deficit targets, rising
inflation and further monetary tightening by the central bank. While the government has expedited
investment project approvals, businesses remain cautious and are likely to kick off project implementation
only post elections. Also, many of these projects were conceptualized when demand trends were quite strong
and inflation lower, and their profitability may need to be re-examined in the current scenario.
Weekly change (%)
S&P BSE Sensex
S&P BSE Smallcap
India - Debt
Indian treasury bond prices remained under pressure and the rupee declined ahead of RBI and US FOMC
meetings next week. FII flows have turned positive last couple of weeks - aggregated $238 mln for the first
four trading days.
• Yield Movements: Rise in yields was sharper at the longer end of the curve – yields on 10-year gilts
increased 11 bps, while those on the 5-year gilts increased 12 bps.Yields on the 1-year papers increased
6 bps while that on the 30 year papers firmed up 17 bps. Spreads between long and short end of the
curve (1/30 year gilts) widened to 64 bps from 53 bps.
• Liquidity/borrowings: Systemic liquidity remained comfortable and RBI announced additional term
repo auction and LAF facilities to ease any liquidity pressures due to advance tax payments.There were no
GOI bond auctions scheduled this week.
• Forex: The INR rallied sharply early in the week, but declined thereafter as the euphoria over election
results faded and investor attention returned to Fed tapering and local macro-economic data disappointed.
At end of Dec 6, forex reserves stood at $295.7 bln.
CPI ex fruits and vegetables
Source: CLSA, CEIC