Morning Market Starter - July 01, 2013

[Rajesh Desai]

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Date: Monday, July 1, 2013
Subject: Morning Market Starter - July 01, 2013
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Theme of the Day The global investor sentiment is weak this morning on the back of a decline in China official PMI to a 4-month low of 50.1 in June-2013 along with comments from Fed officials Lacker and Stein that indicated that the Central Bank would consider tapering QE as early as September. The investors would intraday watch for a host of PMI release due today. View Today DXY: The DXY index is trading near 1-month high at 83.15 levels as against previous close of 83.14, on comments from Fed officials Stein and Lacker that the Central Bank could consider tapering the QE program as early as September. The upward revision in the University of Michigan consumer confidence index for June further boosted such expectations. The safe haven demand for the greenback has also received support from the weak Chinese PMI release with the official print slipping to 50.1 levels in June-2013 while the HSBC PMI estimate has dropped to 48.2 levels. The IMF reserves data also showed a rise in Central Bank Dollar reserves to USD 3.76 trillion at 62.2% of reserves in Q1-2013 as against 61.2% in the previous quarter. The Dollar is likely to remain supported ahead of the critical US NFP release along with a host of PMI releases and BoE & ECB policy meetings due this week. Technically, intraday trend for the DXY is bullish with support and resistance at 82.71 and 83.33 respectively. EUR/USD: The Euro is trading weak at 1.3023 levels as against Friday's highs of 1.3103 amidst broad Dollar strength this morning. In the previous trading session, the currency gains were supported by economic releases as Germany's May retail sales and Italy's June business confidence topped expectations. However, Fed official comments weighed on the global investor sentiment and hence all risky currencies. The markets would closely track a host of PMI releases from the Eurozone economy, employment data due later today coupled with the ECB policy meeting due on Thursday wherein Draghi is likely to continue to assert a continued accommodative monetary policy stance. The intraday trend for the Euro is bearish, with support and resistance at 1.2980 and 1.3050 respectively. GBP/USD: The British Pound is trading slightly weak at 1.5214 levels as against previous close of 1.5210 amidst Dollar strength. The currency moves though are likely to be limited ahead of the BoE policy meeting due later this week, the first under the New Governor Carney, with his monetary policy stance to be closely watched amidst economic headwinds un the British economy. On the data front, the investors would closely watch the UK PMI, mortgage lending & approvals along with consumer credit prints due later today. The intra day trend for the GBP/USD cross is bearish, with support and resistance at 1.5160 and 1.5250 respectively. USD/JPY: The Japanese Yen is trading weak at 99.27 levels as against previous close of 99.12 amidst a strong greenback and heavy exporter selling. In H1-2013, the currency lost 14.3% against the greenback, its worst half yearly depreciation since 1982 on the back of ultra accommodative monetary policy stance. On the data front, the Tankan survey released this morning showed an improvement in Japanese business sentiment for the first time in 2 years in the quarter ending March-2013 thereby indicating that Abe's stimulus efforts are bearing fruit. Technically, the intra day trend for USD/JPY cross is bullish with support at 98.75 and resistance at 99.65 USD/CHF: USD/CHF is currently trading steady at 0.9444 versus previous close of 0.9449, amidst broad Dollar strength. The losses in the franc though remain capped on account of safe haven flows in the Swiss economy amidst global risk aversion. On the data front, the Swiss KOF research institute's economic gauge of expected performance in about six months rose to 1.16 in June-2013, its highest since December. Against the Euro, the franc is trading at 1.2305 levels as against Friday's highs of 1.2354 tracking the losses in the Euro. Technically, USD/CHF is expected to trade bullish with support at 0.9420 and resistance at 0.9488. AUD/USD: The Australian Dollar is trading higher around 0.9167 levels as against previous close of 0.9127 amidst receding bets of a rate cut by the RBA in the policy meeting tomorrow following a surge in the Aig manufacturing index in June. Value buying after the sharp losses in Aussie recently coupled with recovery in metal prices also aided the gains. However, the upside in the currency remains capped amidst weak manufacturing data from China, Australia's largest export destination. Technically, we expect AUD/USD to bearish with support at 0.9114 and resistance at 0.9190. USD/CAD: The Canadian Dollar is trading at 1.0517, little changed from Friday's close as markets await key economic data releases due this week from US, Canada's largest trading partner for further cues. Slower pace of growth in Canada's April GDP coupled with decline in crude oil prices has somewhat weighed on the currency. Technically, we expect USD/CAD to trade bullish with support at 1.0475 and resistance at 1.0535. Sensex: Indian stocks markets opened marginally in the red tracking largely negative global cues. Growth concerns in China coupled with increasing speculation over an early tapering of asset purchases by the Fed weighed on global risks sentiment. However, benchmark stock indices quickly reversed losses aided by expectations of reform measures by the Government. Firm FII inflows into the equity markets on Friday also aided sentiment. Focus today would be on the June PMI manufacturing data. Technically, Sensex is expected to trade ranged between 19000-19700. USD/INR: The Indian Rupee opened weak at 59.46 as against previous close of 59.38 amidst broad Dollar strength and weakness in global equities this morning. The intraday moves in domestic equities will be watched for further direction. While global cues remain weak, the expectations of a spate of policy reforms likely to be announced by the Government in the coming days are likely to support the Rupee. On Friday, the Rupee registered sharp gains on Dollar weakness, capital flows and surge in domestic equities. The intraday trend for USDINR is bearish with support at 59.38 and resistance at 59.72. G-Sec: The Indian Government bonds opened higher this morning tracking decline in global crude oil prices. However, the upside is likely to remain capped amidst losses in US Treasuries with Fed official comments fuelling expectations that the Central Bank might start QE tapering as early as September. The markets would track the moves in the Rupee for further direction. On Friday, the benchmark bond yields ended down 10 bps at 7.46% levels amidst a recovery in the Rupee and with the bond auction witnessing firm demand. The old 10-year bond yield, currently at 7.58%, is expected to trade in the range of 7.55%-7.61% while the new 10-year benchmark, currently at 7.42%, is expected to trade in the band of 7.39%-7.45%. Oil: Global crude oil prices are trading lower as weak manufacturing PMI data from China, released this morning weighed on the outlook for oil demand in the world's second largest fuel consuming nation. However, continued geopolitical tensions in the Middle East coupled with a Bloomberg survey showing that crude oil production by OPEC countries declined in June aided some support to prices an limited the losses. WTI is trading at USD 96.16/bbl, vs. Friday's close of USD 96.56/bbl. Brent is currently at USD 101.69/bbl vs. USD 102.16/bbl on Friday. Technically, Brent is expected to trade ranged between USD 101.25 -102.50/bbl. Gold: Gold prices are trading higher, rebounding from the recent lows as the sharp decline over the last few sessions triggered value buying. Prices also remained supported as sell-off in gold backed exchange traded funds halted in the last three sessions after reaching their lowest level since February 2009. However, strength in the Dollar and continued speculation of asset purchases by the Fed capped the upside. Spot gold is currently hovering around USD 1241.6/oz compared to Friday's close of USD 1234.7/oz. Technically gold is expected to trade ranged between USD 1200-1260/oz. Please find attached herewith a file containing the detailed analysis. Regards, ICICI Bank : Treasury Research Contact: Kanika Pasricha: (+91-22) 2653-1414 (extn: 2260) Rupali Sarkar: (+91-22) 2653-1414 (extn: 2023)

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CA. Rajesh Desai