Global stock, bonds and commodities rallied on a dovish interpretation of the latest comments from the
US Fe...
Weekly Weekly
change (%) change (%)
MSCI AC World Index 3.36 Xetra DAX 5.21
FTSE Eurotop 100 2.70 CAC 40 2.70
MSCI AC Asia...
Weekly change (%)
S&P BSE Sensex 2.37
CNX Nifty 2.40
CNX 500 2.10
CNX Midcap 1.09
S&P BSE Smallcap 0.79
India - Debt
• Macro: After three months of declines, Consumer Price Inflation (CPI) increased last month to 9.87%
from 9.3% led primar...
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Weekly Market Review - July 12, 2013


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Weekly Market Review - July 12, 2013

  1. 1. International Global stock, bonds and commodities rallied on a dovish interpretation of the latest comments from the US Federal Reserve, leading to hopes of continued liquidity support. Earnings optimism also helped equity markets in many developed economies clawback to record highs, and the MSCI AC World Index closed up 3.36%. The IMF lowered global growth projections by 25 bps each to 3.1% for 2013 and 3.8% for 2014 respectively, citing increased downward risks to Emerging economies growth and prolonged weakness in euro area. Global benchmark treasury bond yields eased as latest comments from Fed officials and FOMC meeting minutes assuaged investor concerns about policy direction. The NYSE Euronext took charge of LIBOR rate setting supervision. Commodities including gold witnessed a relief rally this week and the Reuters Jefferies CRB Index closed up 2.12%.The US dollar index edged lower amidst the dovish remarks, but closed week off lows.The euro gained strength, while the yen weakened. • Asia-Pacific: Regional equities and currencies gained ground this week on global central bank newsflow, even as China economic data came in below expectations. China’s trade surplus expanded but less than expectations as both exports and imports fell. In another step to liberalize currency controls, Chinese authorities nearly doubled Qualified Foreign Institutional Investor quota limits to $150 bln this week. Singapore’s economic growth accelerated sharply on the back of growth in manufacturing. Central banks in Korea, Malaysia and Japan maintained status quo on policy. Bank Indonesia raised benchmark policy rate by 50 bps to 6.50%.While IMF upgraded 2013 growth forecasts for Japan to 2% from 1.5%, it reduced growth estimates for the Emerging Asian economies by 0.3% to 6.9%. • Europe/MENA: Leading European indices notched up gains even as economic and policy news flow remained weak. Fitch downgraded France’s credit rating one level to AA+ from AAA and S&P cut Italy’s credit rating to BBB from BBB+. While Greece secured the next round of funding this week, Portugal borrowing costs spiked up amidst political uncertainty and the reform programme. On the economic front, latest data showed Eurozone industrial output contracted in May and German exports also fell. In its latest world economic outlook update, IMF cut Euro area growth estimates by 0.2% to - 0.6% while revising UK growth forecasts upwards. On the corporate front, Schneider Electric is in talks to acquire Invensys for $5 bln and UK government approved privatization of Royal Mail. Russia central bank kept rates on hold and introduced a new lending facility.The situation in Egypt stabilized and a new interim Prime Minister was appointed and neighbouring nations extended financial help. • Americas: Fed statements reassured investors the central bank will take time to shift its policy stance and this alongside hopes of good corporate earnings helped US and other key regional markets end higher. US consumer confidence, as measured by the Thomson Reuters/University of Michigan, decreased and weekly jobless claims increased. Large dividend payouts by Freddie Mac and Fannie Mae helped the US post a record budget surplus in June. Mexico’s central bank left key rates unchanged. In its efforts to curb inflationary pressures, Brazil’s central bank raised the Selic rate by 50 bps to 8.5%. Economic activity in Brazil however remains lackluster. On the M&A front, AT&T is buying Leap Wireless for $1.2 bln and grocery chain Kroger said it is buying Harris Teeter Supermarkets for $2.5 bln. As per IMF’s latest report, Canada GDP will expand at a faster pace than previously estimated, while the US growth rate is expected to slow to 1.7% (1.9% estimated earlier). Market Review WEEK ENDED JULY 12, 2013
  2. 2. Weekly Weekly change (%) change (%) MSCI AC World Index 3.36 Xetra DAX 5.21 FTSE Eurotop 100 2.70 CAC 40 2.70 MSCI AC Asia Pacific 2.70 FTSE 100 2.66 Dow Jones 2.17 Hang Seng 2.03 Nasdaq 3.47 Nikkei 1.37 S&P 500 2.96 KOSPI 2.00 India - Equity Indian equity markets remained on an upward trajectory as comments from US Federal Reserve officials comforted investors. Gains were led by tech stocks, which witnessed a sharp rally following Infosys positive earnings report. Auto and oil & gas stocks however posted declines. FII outflows amounted to $219 mln in the first four trading days of the week. • Macro: Growth in India’s industrial production faltered in May – the index slid 1.6%yoy on the back of decline in manufacturing (-2%) and mining (-5.7%) output. Electricity production growth accelerated to 6.2%yoy (up from 4.2% in April) and offset some of the negative impact on headline numbers. The latest set of numbers emphasizes the need for continued policy action to address issues impacting investment growth. Source: CEIC, Ministry of Commerce, Morgan Stanley Research Helped by sharp decline in gold and oil imports, India’s trade deficit narrowed to about $12 bln in June (from over $20 bln in May). However, exports growth remained weak – exports fell by 4.6%yoy. Going forward, the trade deficit levels could normalize if demand for precious metals remains subdued. Oil price movements, external demand and gold imports will shape trade deficit trends in coming months. • Corporate Earnings: The earnings season started off well this week with Infosys results surpassing market expectations. In the ongoing weak macro environment, we expect companies dependent on the investment cycle to report subdued earnings growth. Ongoing weakness in consumer spending is likely to weigh on consumer durables companies as well. -16% -14% -12% -10% -8% -6% -4% Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Trade Deficit (3-months Trailing, as % of GDP annualized) Trade Deficit (Monthly, as % of GDP annualized)
  3. 3. Weekly change (%) S&P BSE Sensex 2.37 CNX Nifty 2.40 CNX 500 2.10 CNX Midcap 1.09 S&P BSE Smallcap 0.79 India - Debt Indian bond yields were volatile this week, tracking the rupee and economic data. Overall yields closed mixed - bond yields closed almost flat at the shorter end of the curve, but moved up at the longer end of the curve. • Yield Movements: Yields on the 1- and 5-year papers decreased by 1 bp each, while those on the 10-year paper firmed up 3 bps to 7.62%.Yield on the 30 year gilts increased 7 bps. • Liquidity/borrowings: Systemic liquidity tightened compared to last week levels and as a result, repos averaged higher this week and overnight call money rates rose to 7% levels from 6.60% last week. Scheduled bond auctions of GOI securities worth Rs. 15,000 crores received bids of over Rs. 37000 crores and there was no devolvement on primary dealers. • Forex: The Indian rupee witnessed heightened volatility this week – Fed statements, RBI intervention and policy measures to curb speculative trading helped the currency rebound from record lows of Rs.61.21/$ to close at Rs.59.56/$. For the week as a whole, the currency posted gains of 1.1%. As of Jul 5, 2013, India’s forex reserves stood at $280 bln, $4.5 bln lower than last week levels. Change in Foreign Reserves Source: CEIC, Bloomberg, CLSA Asia-Pacific Markets Reports indicate most Asian countries have recorded a fall in foreign reserves over the last quarter due to foreign outflows and central bank intervention to prop up local currencies. In case of RBI, the fall in price of gold, which accounts for a relatively large proportion of the bank’s reserves contributed to the decline. (20) (15) (10) (5) 0 5 10 TA KO SI PH CH MA TH IN ID (USD bn) 2Q13 Since end-2012 Jun/2013
  4. 4. • Macro: After three months of declines, Consumer Price Inflation (CPI) increased last month to 9.87% from 9.3% led primarily by a rise in fuel and food prices.The rise in CPI along with weak rupee are key concerns that could keep RBI on hold even as economic activity remains sluggish. 12.07.2013 05.07.2013 Exchange rate (Rs./$) 59.56 60.22 Average repos (Rs. Cr) 51,699 27,845 1-yr gilt yield (%) 7.53 7.54 5-yr gilt yield (%) 7.68 7.69 10-yr gilt yield (%) 7.62 7.59 Source: Reuters, CCIL. The information contained in this commentary is not a complete presentation of every material fact regarding any industry,security or the fund and is neither an offer for units nor an invitation to invest.This communication is meant for use by the recipient and not for circulation/reproduction without prior approval.The views expressed by the portfolio managers are based on current market conditions and information available to them and do not constitute investment advice. Risk Factors: All investments in mutual funds and securities are subject to market risks and the NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market.The past performance of the mutual funds managed by the Franklin Templeton Group and its affiliates is not necessarily indicative of future performance of the schemes. Please refer to the Scheme Information Document carefully before investing. Statutory Details: Franklin Templeton Mutual Fund in India has been set up as a trust by Templeton International Inc. (liability restricted to the seed corpus of Rs.1 lac) with Franklin Templeton Trustee Services Pvt. Ltd. as the trustee (Trustee under the Indian Trust Act 1882) and with Franklin Templeton Asset Management (India) Pvt. Ltd. as the Investment Manager. Copyright © 2012 Franklin Templeton Investments.All rights reserved