With two holidays in the week and the market flush with supplies, the Rupee traded fairly steady through the week.
It opened the week at 48.35/36 on Tuesday, with Monday remaining closed on account of half yearly closing. There was some buying by state run banks in the early hours Tuesday, which was more than evenly matched by inflows. With the RBI citing a current account surplus of $325 million for the quarter ended June 2002, which has followed a surplus in the March quarter, rupee strength looks increasingly underlined by fundamental factors. Benchmark six-month premium was at 3.95% at the end of the day, slightly lower than previous week’s close at 4.07%.
On Thursday, after yet another national holiday, the rupee opened level at 48.35. Since supply was good, trade was range bound with the pair looking unlikely to cross over 48.37 in the near term. . The bias remains towards strengthening with state run banks coming in to regulate the pace. Most players remained on the sidelines of the market, while a few others sold forward dollars on hopes of softer interest rates, with expectations of a cut in the key Bank Rate in the up coming credit policy on 29th Oct. Six month’s premium closed at 4.01% in comparison to previous day’s close of 3.98%.
On the last day of the week, Rupee treaded comfortably at 48.36, as market brushed off the news of a Pakistan missile test. The markets remain oversold on the dollar but with very little corporate demand, there was nothing to pressure the rupee. Premiums continue to stay soft on hopes of U.S. Fed rate cut and possible subsequent cuts in Indian interest rates.
USD:
The Dollar initially fell across the board due to disappointing US data and falling US equities. However, after some upbeat US data towards the end of the week, the dollar recovered smartly despite a continued sell-off on Wall Street.
The Institute for Supply Management reported that its index of factory activity, based on a purchasing manager survey, fell to a nine-month low of 49.5 in September from 50.5 the previous month. Any reading below 50 suggests contraction. It leaves the US manufacturing sector’s future in doubt and highlights the continued uncertainty facing the broader economy. However, the ISM non-manufacturing index rose to 53.9 in September from 50.9 well above the forecast reading of 51.5. The US service sector, thus, managed to escape the gravitational pull of the ailing manufacturing sector. Finally, the non-farm payrolls fell 43,000 in September, against the forecast rise of 7,000 but the August payrolls were revised up from 39,000 to 107,000. Moreover, the unemployment rate unexpectedly fell to 5.6% against the forecast rise to 5.9% from the previous month’s reading of 5.7%. The unemployment rate has fallen to the lowest rate since January this year. The mixed data suggest the Fed will prefer to adopt a wait and watch policy before cutting interest rates.
The DJ Index closed at 7528 down 458 points while the Nasdaq closed at 1140 down by 81 points from the last week’s closing.
EUR- (0.9812, H-0.9911, L-0.9782, C-0.9782) :
The Euro initially rallied to $0.9911 against the USD due to disappointing US data and losses in US equities but then shed all its gains and finished the week marginally weaker after some upbeat US data and disappointing Eurozone data.
The French consumer confidence index fell to (-18) in September from (-17) in August. The Eurozone manufacturing sector Purchasing Managers’ Index (PMI), seen as one of the best indicators of Eurozone growth prospects, fell to 48.9 in September from 50.8 in August and below the key reading of 50 showing the sector in contraction. Additionally, the Eurozone service sector also contracted with the PMI reading falling to 49.1 in September from the August reading of 50.8. The ECB meets next Thursday but is unlikely to cut the repo rate, now at 3.25 %, until it has clearer signs of economic weakness.
GBP- (O-1.5610, H-1.5767, L-1.5602, C-1.5645) :
Sterling rose to $1.5767 but lost most of its earlier gains after the strong US employment report last Friday.
The UK manufacturing sector PMI fell to 50.2 in September from 51.0 in the previous month showing a deceleration in the growth of this sector. The UK service sector, however, accelerated for the second consecutive month in September with the PMI rising to 55.5 from 55.1 in August. The Confederation of British Industry reported in its monthly distributive trades survey that 41% of retailers surveyed said sales were up on the same time last year, while 23% said they were lower. The CBI further added the September rally was heartening but didn't reflect the underlying slowdown experienced by many retailers. The Halifax building society, the UK's largest home loans lender, on Friday reported annual house price inflation rose 24.2% in September, the highest annual growth rate since May 1989. Prices rose by 4.3% during the month. It also revised up its forecast for annual house price inflation from 15% to 24%. It seems the Bank of England would leave interest rates unchanged from their 38-year low of 4% when it meets next week.
JPY- (O-122.58, H-123.34, L-121.08, C-123.29):
The yen initially strengthened to 121.08 against the dollar in anticipation of accelerated disposal of bank’s bad loans after Prime Minister Koizumi appointed the reform-minded Takenaka as the new financial services minister in place of Yanagisawa. However, the yen later slipped sharply on a growing perception that such reforms could be deflationary due to the domino effect of corporate bankruptcies.
The Tankan’s closely watched large-company diffusion index which subtracts the number of companies with a negative view from those with a positive one - improved to (-14) from (-18) in the June survey. The business confidence among Japan’s large manufacturers improved only slightly over the past three months, underlining the fact that Japan’s fragile economic recovery could be running out of steam. The outlook for the current quarter to December is likely to be gloomy, economists said, with uncertainty increasing after the benchmark Nikkei 225 stock average hit a two-decade low earlier this month. Weaker-than-expected consumer price index data released last week raised the possibility that Japan could enter its fourth consecutive year of deflation, a phenomenon not seen in an industrialised country since the second world war.
The Nikkei closed at 9027 down by 454 points from the last week’s closing.
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Source: Mecklai Financial Services
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