Weekly Market Review - December 13, 2013


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Weekly Market Review - December 13, 2013

  1. 1. Market Review WEEK ENDING DECEMBER 13, 2013 International 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 into 2014. • 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 account balances. • 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.
  2. 2. Weekly change (%) Weekly change (%) MSCI AC World Index -1.50 Xetra DAX -1.81 FTSE Eurotop 100 -2.38 CAC 40 -1.69 MSCI AC Asia Pacific -1.09 FTSE 100 -1.71 Dow Jones -1.65 Hang Seng -2.09 Nasdaq -1.51 Nikkei 0.67 S&P 500 -1.65 KOSPI -0.88 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. 2000 crore. • 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 IP, rhs Core infra growth, rhs 3mma 65 % yoy, 3mma 20 14 60 8 55 2 50 -4 45 -10 2007 2008 2009 2010 2011 2012 2013 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 capital goods. 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
  3. 3. 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 -1.34 CNX Nifty -1.46 CNX 500 -1.55 CNX Midcap -2.08 S&P BSE Smallcap -1.52 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 $295.7 bln. CPI Inflation 12 (% YoY) 11 10 9 8 7 CPI CPI ex fruits and vegetables 6 CPI core 5 Jan 12 Apr 12 Jul 12 Oct 12 Source: CLSA, CEIC Jan 13 Apr 13 Jul 13 Oct 13
  4. 4. • Macro: Consumer price inflation (CPI) moved up to 11.2%yoy led by sharp rise in food prices, particularly vegetable and fruits. At the same time, core CPI, ex food and fuel items, was unchanged over the previous month at 8%. It will be interesting to see how the RBI reads the latest inflation data, given that the rise is entirely on account of food items. Besides, industrial production data this week suggests continued moderation in growth trends. 13.12.2013 06.11.2013 Exchange rate (Rs./$) 62.12 61.41 Average repos (Rs. Cr) 19,795 8,084 1-yr gilt yield (%) 8.79 8.73 5-yr gilt yield (%) 8.98 8.86 10-yr gilt yield (%) 9.16 9.05 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