• Asian equities fell and crude oil hovered near nine-month highs early on Friday as escalating civil war in Iraq hit risk appetite. Sunni Islamist militants have extended their advance south towards Baghdad prompting President Barack Obama to warn of possible US military intervention, while Iraqi Kurdish forces took control of the oil hub of Kirkuk amid the chaos. Weaker-than-expected US retail sales and jobless claims data released on Thursday further tempered economic optimism felt earlier in the week that had propelled Wall Street to record highs. Taking its cue from an overnight slide in US stocks, MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.2 per cent. Tokyo's Nikkei lost 0.9 per cent. US crude rose $1.00 to $107.53 a barrel, highest since September. The yen benefited from its safe-haven status and a decline in US Treasury yields following the soft US data. The Japanese currency traded little changed at 101.73 yen to the dollar, near a two-week high of 101.600 hit on Thursday. On the week, the dollar was on course to lose about 0.7 per cent against the yen. Focus in Asia was on the Bank of Japan's monetary policy decision and Chinese industrial production and retail sales data due around 0530 GMT. With the BOJ again widely expected to stand pat on monetary policy, focus was on whether Governor Haruhiko Kuroda will maintain his confident stance on the economy. As for the China data: "This could have some implications on risk through Asian trade, particularly given the recent improvement we've been seeing in China data," Stan Shamu, market strategist at IG in Melbourne, wrote in note to clients. "There is a good chance there could be some upside risk." The euro was little changed at $1.3552, poised to end the week down nearly 0.7 per cent, hobbled by a widening yield gap between euro zone bonds and their peers following easing by the European Central Bank earlier this month. The pound gained over a cent overnight to five-week highs after Bank of England Governor Mark Carney said on Thursday that British interest rates could rise sooner than financial markets expect. The pound was last up 0.1 per cent to buy $1.6944.
  • NEW YORK: US stocks fell on Wednesday, with the Dow breaking a four-day string of record closing highs, following the World Bank's reduction of its global growth forecast. The S&P 500's drop of 0.4 per cent was its biggest daily per centage loss since May 20. The benchmark index fell for the second day in a row, after four straight record closing highs. The selloff was broad. Every S&P 500 sector index except energy declined for the day. Low volume and low volatility have marked recent sessions, leaving indexes to trade in a narrow range. The World Bank's lower growth forecast provided investors with a reason to unload some stocks. Late Tuesday, the World Bank cut its global economic growth forecast for 2014 to 2.8 per cent from 3.2 per cent because of a harsh US winter and the impact of the Ukraine crisis. "It's pretty quiet. The only news investors are keying in on is the forecast of slightly lower global growth," said Dan Veru, chief investment officer of Palisade Capital Management LLC in Fort Lee, New Jersey, which oversees $4 billion. "I think it's an excuse for some investors to take some money off the table." The biggest drag on the S&P 500 was Bank of America Corp , down 2.1 per cent at $15.59. The bank has reached an impasse in negotiating a multibillion-dollar settlement with the US Department of Justice related to the bank's mortgage investments, according to The New York Times. Investors turned cautious after the surprising primary election defeat of Eric Cantor, the No. 2 Republican in the House of Representatives, by an upstart candidate from the Tea Party movement. The Dow Jones industrial average fell 102.04 points or 0.60 per cent, to 16,843.88. The S&P 500 slid 6.90 points or 0.35 per cent, to 1,943.89. The Nasdaq Composite dropped 6.07 points or 0.14 per cent, to 4,331.93. Even as the Dow and the S&P 500 retreated from recent gains, the PHLX semiconductor index kept up its rally. The SOX rose 0.5 per cent, extending its winning streak to 15 days, its longest stretch of gains since the index was created about 20 years ago. Leading the SOX higher, Micron Technology Inc rose 5 per cent to $30.99 a day after Credit Suisse raised its price target on the memory chipmaker's stock to $50 from $30. The CBOE Volatility Index rose 5.6 per cent to 11.60 but remained well below its historical average of 20. In a sign of the market's low volatility, the 14-day Average True Range on the S&P 500 fell to 9.71, the lowest since February 2013. Orexigen Therapeutics Inc shares sank 14.7 per cent to $5.81 after the US Food and Drug Administration delayed a decision on the marketing application for its obesity drug by three months. Volume was once again below average. With just 5.2 billion shares changing hands on US exchanges, Wednesday's volume was below the 5.76 billion average for the last month, according to data from BATS Global Markets.
  • The euro came under mounting pressure on Wednesday as the European Central Bank's liquidity package encouraged flows out of the zone, while Asian shares consolidated near recent highs following a flat finish on Wall Street. The single currency was sliding across the board as investors looked to borrow euros at super-low rates and buy higher-yielding assets abroad, the so-called carry trade. In contrast the dollar found support in a run of improving US economic data which pushed up Treasury yields and stoked speculation the Federal Reserve might sound less dovish on policy when it meets next week. That diverging outlooks shoved the euro down to $1.3528 and further away from a $1.3668 peak scored at the start of the week. It also hit a seven-month trough on the higher-yielding Australian dollar and to near its lowest against the pound since late 2007. Action in equity markets was more muted with many indices already having come a long way. MSCI's broadest index of Asia-Pacific shares outside Japan was steady at a three-year peak. The MSCI index of emerging markets has also been on a roll to reach its highest since May 2013, in part on speculation the ECB's increasingly aggressive easing will encourage fund flows to the emerging world. Japan's Nikkei edged up 0.4 per cent while the South Korean market hardly budged. Moves were minor on Wall Street with the Dow up 0.02 per cent, while the S&P 500 down 0.02 per cent and the Nasdaq Composite 0.04 per cent firmer. The pan-European FTSEurofirst 300 index had edged up 0.3 per cent to its highest close since January 2008. RISING YIELDS The flow of US data has been bright enough to soothe worries over the economy after a disappointing first quarter. Tuesday's releases showed small business confidence and job openings reaching heights not seen since 2007. That in turn has led the futures market to nudge forward the likely timing for a first rate hike from the Federal Reserve, though that is still well into 2015. Likewise, US Treasury yields have reversed decisively higher with 10-year paper paying 2.64 per cent compared to a trough of 2.402 per cent just two weeks ago. "The bull moves in bonds that began early this year are now officially over," said William O'Donnell Treasury strategist at RBS Markets. "As such, I still expect cash 10yrs to trade at 2.80 per cent over the coming month." The prospect of higher yields has offered some support to the US dollar and it firmed to 80.868 against a basket of currencies, a long way from May's low of 78.906. Still, the broader moves in currencies were more about euro weakness than dollar strength as the single currency came under increasing pressure in the wake of the ECB's easing. The adoption of negative deposit rates by the ECB has sparked talk reserve managers at other central banks were trimming their euro holdings, and that the very low yields offered by peripheral euro zone debt was finally discouraging demand for the paper. In commodities, gold was firm at $1,260.20 an ounce while a breakdown in strike talks in South Africa buoyed palladium and platinum. Brent oil gained 5 cents to $109.57 a barrel, while US crude prices were flat at $104.35.
  • Investors and traders, who were taken by surprise by the unexpected jump in equities last week, need not feel left out. Shares are expected to advance further in the run-up to the Union Budget, which is likely to be presented in the first week of July, as the widespread expectations that the government would announce steps to revive the economy may lift sentiment further. Benchmark indices — the BSE Sensex and NSE Nifty — which soared to all-time highs on Friday, are likely to rise by at least 5 per cent ahead of the Budget, according to fund managers and brokers. "The way the market is surging, we could see the Nifty climbing to 8000 by the Union Budget day," said Rajesh Cheruvu, chief investment officer, Royal Bank of Scotland Private Banking. Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services, expects the Sensex to touch 30,000 before the Budget. On Friday, the Nifty closed at 7,583.40 and the Sensex closed at 25,396.46. These indices have risen almost 5 per cent last week over the previous one. The upside last week caught several investors and traders on the wrong foot as the slowdown in inflows from FII inflows in the week before last (the week beginning May 26) as many as concluded that gains would be capped.

    20140609-073252.jpg The revival in FII inflows last week came out of the blue for these market participants. Investors and traders may continue to focus on stocks and sectors, which could benefit from possible probusiness measures that the government may announce over the next few weeks. The government is expected to deregulate diesel prices, announce steps to revive railways and raise the FDI cap in sectors such as defence. "The government may push the reforms agenda very fast. We expect a lot of business-friendly decisions in the Budget," said Oswal. So far in June, foreign portfolio investors ( FPI) — the new category of overseas investors introduced by Sebi including FIIs and their sub-accounts — pumped in almost Rs 7,000 crore into Indian stocks. Before that, overseas investors had sold in six out of eight sessions till the end of May. Brokers expect FII inflows to pick up ahead of the Budget as several overseas funds may look to ride the momentum. Squaring up of short positions in Nifty derivative contracts in the event of further gains could also push the market up. Many investors are still holding back on their investments for the moment till the new government's plans for the economy become clearer. "People do not have a sense of the government's priorities and plans for the economy -- whether it will target growth or inflation. Once investors have a sense of this, the rally will be stronger," said Cheruvu. Since January, domestic stock indices have gained 26 per cent in dollar terms, making India one of the best- performing emerging markets. The outperformance has also made Indian stocks richly valued vis-a-vis the regional peers, which makes them vulnerable to sharper fall in case of an unfavourable event.
  • Optimism reigned unchecked on Dalal Street with stock benchmarks hitting fresh record highs on Friday buoyed by strong inflows from foreign funds. The advance could continue in the run-up to the Union Budget, likely in the first week of July, when the government is expected to give investors an idea of its plans to bring down inflation, reduce fiscal deficit and revive economic growth. Fund managers said squaring-up of bearish bets on Nifty derivative contracts in the event of further gains may also give an impetus to the stock market. But the upside could be capped at about 5 per cent as expectations of pro-business reforms have been baked into share prices. "Immediate upside may be limited as stock prices are pricing in a lot of potential positive news," said Sanjeev Prasad, senior executive director and co-head, Kotak Institutional Equities. "But, we are positive on reforms and expect progressive economic policies to be announced over the next few weeks," he said. The BSE Sensex rose 353.65 points, or 1.41 per cent, to close at 25,373.16 after touching a life-time high of 25419.14. NSE's Nifty gained 109.30 points, or 1.46 per cent, to end at 7,583.40, off record levels of 7,592.70.

    20140609-072927.jpg Both indices on Friday surpassed the previous life-time highs posted on May 16 — the day of election results. On BSE, 118 stocks, including MRF, Shriram Transport, BPCL, Havells and ONGC, hit all-time highs while 761 stocks hit 52-week highs. So far in 2014, local stock indices have gained 26 per cent in dollar terms, making India one of the bestperforming emerging markets. "Investors are now getting increasingly convinced about the government's resolve to revive the economy and lay out a credible road map on restoring a higher growth trajectory," said Abhay Laijawala, managing director and research head, Deutsche Equities India. But the outperformance has resulted in MSCI India trading at 15.6 times oneyear expected earnings, a 53 per cent premium to MSCI Emerging Markets, according to Deutsche Bank. Foreign institutional investors ( FIIs) net bought shares worth Rs 1,283 crore on Friday, according to provisional data. The European Central Bank announced stimulus measures on Thursday evening, raising hopes that overseas investors would take advantage of record low interest rates in the region by borrowing there and investing in emerging markets such as India even as the US Fed Reserve looks to end its bond-buying programme. Volatility Index (VIX), a measure of traders' expectations of near-term risks in the market based on Nifty options prices, rose 3.5 per cent to 15.98 on Tuesday, but analysts said the current levels do not indicate uneasiness about the prospects. "If the market rises even slightly, it could trigger short covering," said V Balasubramanian, senior fund manager, IDBI Asset Management. "Many traders had written Nifty 7500 calls aggressively and further upsides could trigger the threshold limit that will force them to cover their positions," he said. By selling 7500 calls on Nifty options, traders were betting that the index would not cross 7500. Outstanding positions in Nifty 7500 calls had reached almost 60 lakh units — the highest across strikes. Oil & gas stocks were among the top gainers on Friday as investors were betting on the new government to free up prices. ONGC surged 10.6 per cent, GAIL soared 7.7 per cent and Reliance Industries gained 3.3 per cent. Sanjeev Prasad of Kotak Institutional Equities said oil & gas stocks are pricing in lower subsidies and higher gas prices. "We have been very positive on this sector on expectations of reforms and lower subsidies. We expect the government to reduce subsidies and increase gas prices, which will lead to a big increase in earnings of the companies. However, valuations are fair for the stocks now," he said.