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NRIOL.COM - Forex News and Analysis |
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October 03, 2002
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Local news and views:
The Rupee started the week on a firm note helped by bunched up dollar inflows but the trade and investment flows were steadily absorbed by state run banks. Traders were also wary, as crude oil prices were high due to a war - like situation in the Middle East. (US benchmark crude oil futures for Nov was trading at $31.22 per barrel)Elections were also due in sensitive areas in the Kashmir valley where militants had earlier launched attacks on security forces and party workers. There was also some buying pressure seen by importers at 48.40 as the Rupee had gained nearly 1.5% from its all time low. Two rounds of Kashmir elections were broadly peaceful with an average
voter turnout of 44%, despite the Hurriyat calling for a boycott of the polls and other Kashmir separatist parties calling for a shoot at sight of people who attempted to vote. Pakistan as usual has dismissed the election as farce calling the revolt in the valley a “freedom struggle”. At least 536
people have been killed in the valley since elections were announced. The Rupee was unnerved by the Kashmir tensions and was glued to the 48.39/40 levels.
In another incident of terror , two young terrorists massacred 28 men, women and children in a dastardly act in the Akshardham temple in Gandhinagar -Gujrat. The disappointing & sad story of terrorism ended with the Indian National Security Guards storming the two gunmen after a nightlong confrontation. India accused Pakistan of involvement & Pakistan plainly denied it. Amazingly the Rupee shrugged off the whole incident & was steadfast at 48.39/40 levels. A strike was called by political parties in protest of the Gandhinagar incident, on 26/09/02. Financial markets across India were sluggish due to the nation wide strike.
As the week ended the Rupee showed stalwartness closing on Friday at an
eight month high of 48.3750/3850. Bunched up Dollar supplies were reported from foreign institutions building up stake in ICICI Bank. ICICI Bank, the country’s second largest bank, said on Thu that it had sold 16% stake for $272.4 mln to foreign investors including Lombard insurance and Singapore government. Some of the money would have been liquidated on Friday with more to be liquidated this week.
Looking ahead the Rupee would be strong but cautiousness would linger around
the oversold market. Any news of war could take out 6-10 paise in the Rupee on a single day. Consistent scaling up of Dollar sales in the forward market is advisable for exporters. Importers should look at paying a small premium and hedging near term imports. Foreign funds which have about $15 bln invested in Indian markets were upset this month after government postponed the privatization of HPCL & BPCL. These funds have sold $183 mln worth Indian assets in Sep. S& P downgraded India’s local debt to junk citing inability to push reforms & mounting public debt, as their major concerns. Through the
Rupee has till now shrugged off all such negative news, one cannot afford to be complacent about such things, especially when the market is so oversold on Dollars.
International news:
USD:
Posting the third straight month of declines US leading indicators fell by 0.2% in August versus a 0.4% drop in July. Initial jobless claims fell 24,000 to 406,000 last week, though it has hovered above the crucial 400,000 level for the fifth straight week. The recent rise in jobless claims suggests that the overall unemployment rate could relapse again when it is released next week. The rate had eased to 5.7% in August from 5.9% in July, giving some hope that the employment situation had seen a turnaround. A renewed deterioration in employment conditions could weigh on the already fragile consumer spending, which in turn could hinder economic recovery in the U.S. Moreover, in a signal that the U.S. housing market may be softening, existing home sales fell in August by 1.7% from July. Durable goods orders declined by 0.6% in August, though the data still beat expectations of a 3.4% fall. Excluding defence goods, the figure rose by 0.6%. U.S. second quarter GDP growth was revised up to 1.3%, an improvement from the previous estimate of 1.1% but still much below the buoyant 5% growth rate in the first quarter. A reduction in the size of the trade deficit contributed to the revised overall figure, as strength in services exports partly offset the surge in imports.
Economic recovery continues to appear uneven and so was Dow and NASDAQ trading. Dow lost 283 pts to end at 7701 and NASDAQ lost 22 pts to close at 1199.
EUR- (O-0.9823, H-0.9863, L-0.9729, C-0.9805) :
ECB data shows Eurozone saw an inflow of 10.6 bln euros in combined net direct investment in July after a 1.3 bln outflow in June, July trade surplus grew to 14.2 bln euros from 10.9 bln surplus one year ago and July Current Account shrank to 2.6 bln from 3.9 bln euros last month. The Conference Board's consumer confidence survey dipped further to 93.3 in September versus a revised 94.5 in August, posting the lowest level since November 2001. On a positive note, the expectations index improved to 96.5 versus the previous 95.5, suggesting consumers hold a more optimistic outlook on future conditions. The employment situation seems to have deteriorated, with 25.5% of those surveyed saying jobs were hard to get in September compared to 23.8% in August. On a year-to-year basis, CPI rose by 1.1%, well below the ECB's 2% target for the Eurozone. Preliminary harmonised CPI rose 0.1% in September on a month-to-month basis versus a 0.2% fall in August. HICP year-on-year rose 1.1% versus the previous 1.0%. Meanwhile, Germany's preliminary consumer prices index declined by 0.1% in September, matching the percentage change in August. Germany September IFO Business Confidence fell as expected (to 88.2 from 88.8).
Troubled by the narrow outcome of the German elections and the miserable performance of European bourses Euro continues to be range bound with undecided direction.
GBP- (O-1.5546, H-1.5672, L-1.5483, C-1.5608) :
Pound has gained strength on back of Euro. It did face the selling this week due to UK consumer confidence rising to +4 in Sept from +2 in August and an upward revision to Q2 GDP to 1.3% from 1.2%.
JPY- (O-123.20, H-124.23, L-121.83, C-122.55):
Japan July All-Industries Activity Index up 0.2% month on month (prev m/m 0.1%) and July Tertiary Sector Index up 0.3% m/m. (prev 0.3%). Japan MoF's Kuroda says always watching forex market closely and add he does not see any special trends in inward or outward investment.
The key event going into this weekend is the G7 FinMin meeting. Markets will be interested in any new developments seen in Japan after a flurry of speculation driving the yen up and down this week. The latest bold measure by the BoJ to purchase stocks from troubled banks started speculation that Japan may in fact finally do something about its bad loan problem. The action on the ground will determine the next move but nevertheless the yen has risen over the past 4 trading days as dealers reduced their short yen positions in anticipation of the outcome.
Nikkei closed at 9106 with drop of 290 pts.
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Source: Mecklai Financial Services
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