REPORT ON DOLLER

Dollar Extends Rally on Rate Talk :
Dollar resumes recent strong rebound after a brief retreat today with dollar index breaching 76 level briefly and remains firm. Strength in the greenback also drags gold down to below 1150 while crude oil is also back below 75 level. Last week's strong employment report triggered much speculations that Fed would hike sooner than earlier expected while dollar could start to lose its status of funding currency in carry trades. Traders continue to bid up the greenback ahead of Bernanke's first speech since last week's non-farm payroll where markets would expect something on rate outlook.

Looking at the dollar index, the rally today affirms the case that rebound from 74.19 is still in progress and should now be targeting 161.8% projection of 74.19 to 75.58 from 74.27 at 76.52 next. Break there will suggest that the rise from 74.91 is developing into an impulsive wave which add more credence to the case that the bullish case that the index has bottomed out in medium term at 74.19. As noted before, we're looking at the prospect of rally to 38.2% retracement of 89.62 to 74.19 at 80.08 in the least bullish scenario. On the downside, though, below 75.49 minor support will turn intraday bias neutral first.

Sterling is one of the worst performer today on talk that UK will be the first G10 country to have a full-blown debt crisis and may lose its AAA debt rating next year after elections. Morgan Stanley European investment team wrote in a report that "growing fears over a hung parliament would likely weigh on both the currency and gilt yields as it would represent something of a leap into the unknown, and would increase the probability that some of the rating agencies remove the UK's AAA status. " Morgan Stanley also said sterling may fall a further 10% in trade-weighted terms.

On the other hand, Canadian dollar is rather resilient so far, as boosted my much stronger than expected housing data. Building permits rose 18.0% mom in October versus expectation of 1.0% while September's figure was also revised up from 1.6% to 3.2%. The strengthen and weakness of both currencies are well represented in today's sharp fall in GBP/CAD cross which confirms that fall from 1.7890 is resuming. We're looking at the prospect of further decline to 1.7103 support later this week to confirm completion of rebound form 1.6233.

AUD/USD Outlook:
Daily Pivots: (S1) 0.9071; (P) 0.9182; (R1) 0.9256

AUD/USD's break of 0.9102 support confirms that rebound from 0.8945 has completed. Fall from 0.9321 is now expected to continue to retest 0.8945 support next. As noted before, break there will confirm the bearish case that AUD/USD has topped out in medium term, by completing a head and shoulder top (ls: 0.9326, h: 0.9404, rs: 0.9321). In such case, further fall should be seen to 100% projection of 0.9404 to 0.8945 from 0.9321 at 0.8862 next. On the upside, above 0.9170 minor resistance will turn intraday bias neutral and bring sideway consolidations. But risk will remain on the downside as long as 0.9321 resistance holds.

In the bigger picture, at this point, we're still slightly preferring the bearish case that medium term rise from 0.6008 has completed at 0.9404 already, with bearish divergence condition in daily MACD. Break of 0.8945 support will confirm this case by completing a head and shoulder top (ls: 0.9326, h: 0.9404, rs: 0.9321). In such case, sizeable correction should be seen to 0.7702/0.8626 support zone but strong support should be seen there to bring rebound. On the upside, decisive break of 0.9321 resistance will indicate that fall form 0.9404 has completed. The corrective three wave structure will indicate that AUD/USD's up trend is not completed yet and medium term rally from 0.6008 is still in progress for 0.9849 high.

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GOLD AND OIL FOCUS REPORT

Risk Aversion Increased After Bernanke's Comment, Crude Extended Weakness:
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WTI crude oil declined for a 4th consecutive day and closed at 73.93, -2% from Friday amid strong rebound in USD. Selloffs in risky assets accelerated after the FED chairman Ben Bernanke said that the US economy is facing 'formidable headwinds' due to weak labor market and tight credit.

Gold also extended weakness and plunged to as low as 1136.1 before rebound. February's contract recovered in NY session and settled at 1164, down -0.5% for the day. The strong recovery from the severe selloff indicated underlying firmness in the yellow metal.

In a speech to the Economic Club of Washington, Bernanke said that 'the economy confronts some formidable headwinds that seem likely to keep the pace of expansion moderate'. Moreover, he also anticipated 'subdued' inflationary pressure.

When asked about the timing of rate hike, the Fed Chairman reiterated the stance of keeping rate low for 'an extended period' but FOMC members will factor in recent signs of strength in the discussion next week. The comment disappointed many hawks in the market and the Fed funds futures projected a 3.2% chance (4.4% before Bernanke's speech) that the Fed will lift its benchmark interest rate to 0.5% in January. However, this was still higher than the 1.8% probability a week ago
USD rose against major currencies both on speculations of FED's rate hike and demand for safe haven asset after Bernanke's comments. The greenback rallied +0.3% and +0.2% against the euro and the pound respectively.

Against commodity currencies, the dollar also advanced, by +0.2%, +0.4% and +0.7% against CAD, AUD and NZD. The Bank of Canada and the Reserve Bank of New Zealand will discuss about interest rate this week but we expect both central banks will maintain their policy rates at current levels. However, policymakers may warn that appreciation in the country's currency will delay the pace of recovery.

At Tuesday's meeting, the BOC should most probably announce to keep its policy rate at 0.25%. Recovery has been seen in Canada since the last meeting. Unemployment rate surprisingly dropped to 8.5% with 79.1K increase in payrolls in November. However, GDP growth in 3Q09 missed market expectation. It's unlikely that the central bank will deliver a more hawkish view before recovery proves to be self-sustainable. Therefore, we expected the BOC will reiterate that 'conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target'

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INDIAN STOCK MARKETS END SESSION

The key benchmark indices fell in volatile trading on weak European stocks and lower US index futures. The BSE Sensex lost 118.40 points or 0.69%, off close to 195 points from the day's high and off close to 40 points from the day's low. The Sensex fell below the psychological 17,000 mark. Index heavyweight Reliance Industries (RIL) fell more than 3% after the company's bonus shares were admitted to trading today, 7 December 2009.

Metal stocks tumbled on decline in metal prices on the London Metal Exchange on Friday, 4 December 2009. Banking, auto and realty stocks also fell. The market breadth turned negative from strong breadth in early trade.

Intraday volatility was high. Stocks slipped into the red soon after an initial surge as a better-than-expected US job report rekindled talk the Federal Reserve may have to raise interest rates sooner than expected. The market extended losses in mid-morning trade. The market regained positive zone in early afternoon trade on strong response to the initial public offer (IPO) of power generation firm JSW Energy. The market moved between positive and negative zone later. The market slumped to hit fresh intraday low in mid-afternoon trade tracking weak European stocks. The market extended losses in late trade.

The government has not issued any direction to state-run banks on consolidation and it was up to the banks themselves to decide on mergers, Finance Minister Pranab Mukherjee said on Monday.

The initial public offer (IPO) of JSW Energy, a part of Sajjan Jindal-led JSW Group, was oversubscribed shortly after the bidding for the IPO commenced at 10:00 IST today, 7 December 2009, data on NSE showed. The issue was subscribed 1.25 times by 16:00 IST. The price band for the IPO is Rs 100 to Rs 115. The issue will close on 9 December 2009.

Overseas fund flows into Indian stock markets are manageable and foreign portfolio investors should be allowed smooth entry and exit to boost equity investments, Securities and Exchange Board of India (Sebi) Chairman C.B. Bhave said. In an interview to a newspaper, Bhave said the authority could only ensure the necessary regulations for such investments had been adhered to.

The slowdown in the Indian economy is showing signs of moderation, Prime Minister Manmohan Singh said on Friday 4 December 2009. Finance Minister Pranab Mukherjee said on Friday, the Indian economy is expected to show strong growth in the October 2009-March 2010 period.

India could return to a higher growth trajectory of 8-9% in two years, but it needs to invest more in infrastructure for sustaining such growth, World Bank president Robert Zoellick said on Friday. Excess liquidity in global markets is driving up prices of farm commodities, which could be potentially dangerous in the near term, Zoellick said.

The Reserve Bank of India (RBI) is likely to revise upwards growth forecasts for 2009/10 when it reviews policy in January 2010 and monetary action may be needed if inflation accelerates, Usha Thorat, a Reserve Bank of India (RBI) deputy governor said on Thursday 3 December 2009. Thorat, said India's exit from its loose policy would be a challenge and managing the crisis was easier than managing the recovery now.

Another RBI deputy governor Subir Gokarn said on Saturday, 5 December 2009 that a persistent rise in food prices may raise broader inflationary expectations. The central bank is looking to strike a balance between supporting growth and taming inflationary worries, Gokarn said. The exit from easy monetary policy is a "graded" process and economic growth alone will not determine its pace, Gokarn said. Data last week showed food prices rose 17.47% in the 12 months to 21 November 2009, after the weakest monsoon since 1972 followed by floods in parts of the country hurt farm output.

Government data, last week, showed the economy grew at its fastest pace in 18 months expanding an annual 7.9% in the September 2009 quarter. C. Rangarajan, who heads the prime minister's Economic Advisory Council, said he expected 2009/10 growth close to 7%. The central bank is scheduled to review policy on 29 January 2009.

Foreign direct investment (FDI) into India in the April-October period was about $18 billion, Trade Minister Anand Sharma said on Friday. Between April and September, the first half of the 2009/10 fiscal year, foreign direct investment was in excess of $15 billion, Sharma said.

Meanwhile, Prime Minister Manmohan Singh arrived in Moscow, Russia on Sunday to ink billions of dollars of weapons deals and for talks on a landmark nuclear deal that could significantly widen atomic fuel imports from Russia.

European shares retreated on Monday after hitting a two-week closing high in the previous session, with UK banks coming under pressure on news Britain was still considering some kind of windfall tax on bankers' bonuses. The key benchmark indices in France, Germany and UK fell by between 0.34% to 0.53%.

Most Asian stocks rose on a better-than-expected US job data. The key benchmark indices in China, Japan, South Korea, Singapore and Taiwan rose by between 0.21% to 1.63%. But the key benchmark indices in Hong Kong and Indonesia fell by between 0.77% to 1.11%.

China will maintain a proactive fiscal policy in 2010, and will keep monetary policy loose, a Chinese economic policy-making group was reported as saying Monday. The closing statement of the Central Economic Working Conference, an annual economic policy conference, appeared in reports citing Chinese state media. The conference was attended by President Hu Jintao and other top Chinese leaders.

Trading in US index futures indicated Dow could fall 37 points at the opening bell on Monday, 7 December 2009.

US markets ended higher on Friday, 4 December 2009, as employers cut less jobs than expected in the month of November 2009, which showed signs of improvement in the economy. The Dow Jones Industrial Average gained 22.75 points, or 0.2%, to settle at 10,388.90. The S&P 500 index rose 6.06 points, or 0.6%, to 1,105.98. The Nasdaq Composite Index added 21.21 points, or 1%, to 2,194.35.

US employers cut only 11,000 jobs in November 2009, the smallest decline since the recession started in December 2007. November unemployment rate also declined to 10% as against 10.2% in the month of October.

Countries should not rush to end fiscal incentives to help their economies cope with the global economic crisis, in order to build a base for sustained long-term growth, World Bank's chief economist Justin Lin said. Justin Lin said on Sunday he expected full global economic recovery in 2013. He said countries should keep fiscal measures in place until 2012, despite concerns from policy makers about the risk of inflationary pressure from higher government borrowing to fund the plans.

The BSE Sensex fell 118.40 points or 0.69% to 16,983.14. The Sensex rose 75.06 points at the day's high of 17,176.62 in early trade. The Sensex fell 158.53 points at the day's low of 16943.01 in late trade.

The S&P CNX Nifty fell 42.20 points or 0.83% to 5066.70. Nifty December 2009 futures were at 5,060, at a discount of 6.70 points as compared to the spot closing of 5,066.70. Turnover in NSE's futures & options (F&O) was Rs 58,040.99 crore, sharply lower than Rs 71,530.98 crore on Friday, 4 December 2009.

The market breadth, indicating the overall health of the market turned negative from a strong breadth in early trade. On BSE, 1315 shares advanced as compared with 1461 that declined. A total of 85 shares remained unchanged.

Among the 30-member Sensex pack, 20 fell while the rest rose.

BSE clocked a turnover of Rs 4744 crore, lower than Rs 5141.25 crore on Friday, 4 December 2009.


A deluge of global liquidity has boosted stocks across the globe this year. Governments and central banks around the world have injected trillions of dollars in the past one year to pull the world out of a most severe recession since the 1930s Great Depression. The Sensex is up 7335.83 points or 76.04% in calendar year 2009, as on 7 December 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex is up 8822.74 points or 108.11% as on 7 December 2009.

Coming back to today's trade, the BSE Mid-Cap index fell 0.79% and underperformed the Sensex. The BSE Small-cap index fell 0.41% and outperformed the Sensex.

Sectoral indices on BSE displayed mixed trend. The BSE Capital Goods index (up 0.69%), the BSE Teck index (up 0.34%), the BSE IT index (up 0.24%), the BSE FMCG index (down 0.01%), the BSE Consumer Durables index (down 0.05%),the BSE Power index (up 0.59%), the BSE Bankex (down 0.61%), the BSE PSU index (down 0.68%), outperformed the Sensex.

The BSE Metal index (down 3.29%), the BSE Realty index (down 2.44%), the BSE Oil & Gas index (down 1.97%), the BSE Healthcare index (down 1.18%), the BSE Auto index (down 0.83%), underperformed the Sensex.

India's largest private sector firm by market capitalisation Reliance Industries (RIL) fell 3.07%. The company's bonus shares were admitted to trading effective today, 7 December 2009. The company has issued one fully paid bonus equity share for every one existing fully paid equity share of Rs 10 each.

Reliance Industries said on Friday 4 December 2009 one of its units signed a deal with Colombian state oil firm Ecopetrol for two deepwater blocks in Colombia. Under the deal, Ecopetrol will take a 20% stake in the Borojo North Block 42 and the Borojo South Block 43, which together cover an area of about 8,000 square kilometres in water depths ranging from 60-1,500 metres. Reliance's unit will hold the rest of the stake in the blocks and will be the operator. The deal is subject to approval from Colombia's upstream regulator.

Shares of public sector oil marketing companies rose as lower crude oil prices will reduce under-recoveries on domestic sale of petrol, diesel, kerosene and LPG at controlled prices. Indian Oil Corporation, BPCL and HPCL rose by between 0.85% to 1.61%. Crude oil for January 2010 delivery fell 1.3% to $75.47 a barrel on Friday 4 December 2009 on New York Mercantile Exchange.

Oil Ministry said today that it has sought Rs 20000-crore oil worth of bonds from the finance ministry.

Realty shares fell on profit taking. DLF, Omaxe, Indiabulls Real Estate, Unitech and Sobha Developers fell by between 0.93% to 5.97%.

Metal stocks fell after LMEX, a gauge of six metals traded on the London Metal Exchange, fell 0.37% on Friday, 4 December 2009. Hindalco Industries fell 3.36%. The company hiked product prices by Rs 3000 a tonnes, with effective from 1 December 2009. Steel Authority of India, National Aluminum Company. Sterlite Industries, and Hindustan Zinc fell by between 2.66% to 4.21%.

Tata Steel, the world's eighth-largest steelmaker by sales fell 3.38% after company on Friday announced a partial closure of Corus' Teesside Cast Product (TCP) plant in north England, after four companies stopped buying metal from it. Operations will be suspended at the end of January 2010 forcing the loss of 1,700 jobs around 600 fewer than envisaged earlier, Tata Steel said in a statement.

Auto stocks fell on profit taking. Auto stocks have rallied recently on the back of robust sales figures for November 2009. India's second largest bike maker by sales Bajaj Auto fell 1.66%. The company's total vehicle sales rose 73% to 2.76 lakh units in November 2009 over November 2008. Motorcycles sales jumped 84% to 2.42 lakh units.

India's top truck maker by sales Tata Motors fell 0.79%. The company's total sales zoomed 65.49% to 54,108 units in November 2009 over November 2008.

Tata Motors' total passenger vehicle sales in the domestic market grew by 44.52% at 20,706 units last month, against 14,327 units in the same month last year. Exports jumped by 86.64% at 3,994 units, compared with 2,140 units in the same month last year, it added.

India's top tractor marker by sales Mahindra & Mahindra (M&M) fell 2.77%. The company's domestic auto sales soared 105.1% to 21,387 units in November 2009 over November 2008. M&M sold a total of 22,587 vehicles (domestic plus exports) in November 2009 as against 11,515 vehicles sold in November 2008.

India's largest small car maker by sales Maruti Suzuki India fell 1.19%. As per recent report Maruti Suzuki, plans to raise production by up to 75% over the next five years in a bid to hold on to its 50% market share. The company's total vehicle sales spurted 66.60% to 87,807 units in November 2009 over November 2008. Domestic sales spurted 60.10% to 76,359 units, while exports surged 128.60% to 11,448 units in November 2009 over November 2008.

But, India's largest motorcycle maker by sales Hero Honda Motors rose 0.46%. The company's total vehicle sales jumped 32% to 3.81 lakh units in November 2009 over November 2008.

Banking shares also fell on profit taking, reversing initial gains. India's largest bank by net profit and branch network State Bank of India fell 0.1%. The UPA government last week cleared the introduction of State Bank of India (Amendment) Bill in the current session of Parliament. The Bill seeks to bring the government's holding in the country's largest public sector bank on a par with other public sector banks at 51 %. Currently, the Union government holds 59% stake in SBI. At present, the stake of the promoter, that is Government of India, cannot fall below 55 %.

India's largest private sector bank by net profit ICICI Bank fell 1.18% even as its ADR rose 1.97% on Friday, 4 December 2009. ICICI Bank is reportedly set to become the second Indian financial institution after State Bank of India to get a full-fledged banking licence in Singapore, which will allow it to set up branches, ATMs, accept deposits and disburse loans like a local bank.

But, India's second largest private sector bank by net profit HDFC Bank rose 0.74% as its ADR rose 1.73% on Friday.

India's largest mortgage lender by total income Housing Development Finance Corporation (HDFC) rose 1.23% on bargain hunting after declining for the last three days in a row on investor worry a dual interest rate scheme on home loans introduced by the company would hit margins. After market hours on 1 December 2009 the firm announced a dual-rate loan scheme under which a borrower will be charged a fixed rate up to March 2012 and a floating rate thereafter. For a 20-year loan of Rs 30 lakh, a borrower will pay a fixed rate of 8.25% up to March 2012 and then a floating rate that's 500 basis points below the prime lending rate (PLR) - the institution's benchmark rate. Currently, the PLR is 13.75%.

Select construction shares rose on government's thrust on the infrastructure sector. Punj Lloyd, Nagarjuna Construction Company, IVRCL Infrastructure & Projects and Gayatri Projects rose by between 0.16% to 1.25%.

The government has set a target of spending $20 billion a year on road construction.

India's largest engineering and construction firm by sales Larsen & Toubro rose 1.2% on hopes of a strong order flow. Among other capital goods stocks, Bharat Heavy Electicals, ABB, SKF India, Punj Lloyd rose by between 0.26% to 6.63%.

IT stocks rose on strong US jobs data. US is the biggest market for Indian IT companies. India's largest software services exporter Tata Consultancy Services (TCS) rose 0.34% to Rs 697.85. But, the stock came off the day's high of Rs 705.80. India's third largest software services exporter Wipro rose 0.02% to Rs 637.55. It came off the day's high of Rs 647. Its ADR rose 0.25% on Friday.

India's second largest software services exporter Infosys Technologies rose 0.31% to Rs 2389.90 after its ADR rose 0.9% on Friday. The stock came off the day's high of Rs 2425.25. Infosys Technologies is reportedly partnering the Council of Scientific and Industrial Research for its open source drug discovery project that focuses on an efficient way to look for tuberculosis drugs.

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