Month: July 2012

India’s stock market rally may not last: Chart

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Despite the gloom about India’s economy, the country’s stock market is up 12.5% this year making it the best performer among the BRIC nations. India’s Sensex has also outperformed other major indices in Asia, such as the Hang Seng, Shanghai Composite and Nikkei 225.

This week Indian markets were looking for a positive direction from the government after the country’s Prime Minister Manmohan Singh took charge of the finance ministry. Singh’s recent comments have given investors hope of favorable changes to government policy and initiatives.

But the key question for investors is whether the stock market rally will be short lived or the start of something bigger.

The Sensex is dominated by a long term chart pattern. This is a down sloping triangle. It is best seen on the weekly Sensex chart. The base of the triangle is near 17900. The downside target projection for the triangle is near 15500. This downside target was achieved and the 15500 level played a strong role as a support area.

The down sloping trend line is projected below the base of the triangle and plays an important role in the current behavior of the market. The initial market breakout above the downtrend line in February 2012 was not successful. The retreat following this breakout used the trend line as a support level and the index slid down this line in May and June.

The base of the triangle pattern near 17900 has acted as a support level in the triangle pattern and it is now acting as a resistance level that effectively caps any rebound.

Since August 2011 the Sensex has been trapped in a sideways consolidation band between 15500 and 17900. The current rally in response to Government initiatives must be seen in this context.

There is a higher probability that the market will retreat from the 17900 level and return to this sideways trading consolidation. This may include a brief breakout above 17900 as happened in February 2012.

A sustained move above 17900 is required before this rally can be classed as the beginning of a new longer term uptrend. From a technical perspective there is a low probability of this development because there is no end of trend pattern development shown on the Sensex index.

The tight and well defined trading band between 15500 and 17900 suggests the most probable outcome is a return to sideways consolidation trading.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com . He is a regular guest on CNBC’s Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

CNBC assumes no responsibility for any losses, damages or liability whatsoever suffered or incurred by any person, resulting from or attributable to the use of the information published on this site. User is using this information at his/her sole risk.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US economy may be bottoming out: Economist

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A surprise contraction in US manufacturing activity in June has raised the prospects of a worsening slowdown in the US, but one economist says the economy may actually be showing signs of bottoming out.

Gary Schlossberg, Chief Economist at Wells Capital Management, told CNBC Asia`s “Squawk Box” on Tuesday a recovery in housing and construction will lend support to the economy for the rest of the year.

Construction spending in the US increased a better-than-expected 0.9% in May to an annual rate of USD830 billion, the highest level since December 2009, the Commerce Department said on Monday. Economists polled by Reuters had expected construction spending to rise 0.2% after a 0.6% gain in April.

“I think it`s interesting that the construction spending numbers do point to the fact that this recovery, such that it is, is being led increasingly by housing, which could provide some support to the economy later in the year,” Schlossberg said.

Housing is becoming one of the few bright spots in the US economy, whose recovery has slowed in recent months as the debt crisis in Europe and worries about a “fiscal cliff” of higher taxes and lower spending create a cloud of uncertainty for businesses and households.

That uncertainty is already having an impact in the manufacturing sector. The US Institute for Supply Management`s (ISM) index dropped from 53.5 in May to 49.7 in June, the lowest reading since July 2009. The data, released Monday, surprised analysts who were expecting a slight expansion.

But Schlossberg said lower fuel costs, rising home values, the return of `risk-on` trading in the wake of Europe`s bailout agreement with Spain and Italy, and hopefully, higher consumer spending will boost growth this year.

He pointed out that while the decline in manufacturing was unexpected, the weakness wasn`t across the board. There are still jobs available in some segments of manufacturing and employers are having difficulty filling vacancies, he said.

“This drop-off in orders may have surprised manufacturers as much as it surprised us,” he said. “Clearly, there`s caution on both sides of the ledger. They`re not getting the orders, they`re keeping inventories lean. On the other hand, there is that case that the labor markets may be a little bit tighter in some areas than they appear on the surface.”

The shortage of skilled manufacturing workers in some sectors could be encouraging businesses to hold off on new orders until they get better visibility on the economic outlook, he said.

A number of economists and strategists believe the weakness in the manufacturing sector won`t lead to another recession.

Michael Jones, Chief Investment Officer of Riverfront Investment Group, a US-based asset manager, told CNBC the US economy should improve in the second half of the year, albeit in a “three steps forward, two steps back” manner.

“This second quarter was the maximum period of uncertainty, whether Europe was going to be able to pull a policy rabbit out of their hat,” Jones said. “And you also had, for most of the period, uncomfortably high gasoline prices in the U.S. so the combination of those two forces, add on top of that a little bit of uncertainty over fiscal policy in the U.S. and there are a lot of reasons to curtail your purchases during your quarter.”

– By CNBC`s Jean Chua.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

China’s auto sector hit by new caps on car purchases

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The unexpected move by Guangzhou, China’s third largest city, to restrict car purchases by putting a cap on vehicle registrations, led to a selloff in auto stocks on Tuesday, with shares of Dongfeng Group and Great Wall Motor falling 6.4% and 3%, respectively.

Guangzhou is the fourth city in China – after Beijing, Shanghai and Guiyang – to limit car sales in order to alleviate traffic conditions and pollution and analysts say the move is negative for the country’s auto sector, as it sets a precedent for other cities to implement similar measures.

“Guangzhou said there would be a small chance that they would implement anything like (the limits imposed by) Beijing at the beginning of this year. It was a surprise to the auto market and to car buyers,” Steve Man, analyst at Nomura told CNBC on Tuesday.

Guangzhou’s program, which ends June 30, 2013, limits the number of registration plates the city will issue for small and medium-sized passenger cars to 120,000 – approximately half the number of passenger cars registered in 2011.

Man says while Guangzhou’s purchase restrictions alone aren’t going to have a material impact on sales (the city accounts for just 2.5% to 3% of total Chinese auto sales) the biggest concern is that more cities could follow suit.

The Southern cities of Shenzhen, Hangzhou and Chengdu could impose similar restrictions, Man says, due to high levels of congestion. In Chengdu, for example, there are 230 cars per 1000 people.

Vivek Vaidya, Vice President, Automotive Sector, Frost and Sullivan agrees there is a high risk that other cities with elevated levels of congestion will use car purchase restrictions to ease traffic conditions.

“Any city that’s ready with alternative public transportation could implement purchase restrictions, Vaidya said. “If in the next year, two-three cities join, this will impact sales growth for automakers in China.”

China’s auto sales, which slowed sharply in 2011 as the government rolled back tax incentives for small cars, recovered steadily in the first half of this year.

According to Nomura, auto sales will climb 6.5% in 2012 after a 5.2% gain in 2011. But that’s still a long way from a 33% sales growth for the industry in 2010.

“If Shenzhen, which accounts for 2.5% of overall Chinese auto sales, also implemented similar restrictions, then we would see a material impact. It could impact 1-1.5 percentage points of growth for the overall passenger auto market,” Man said.

According to Man, Guangzhou’s new policy will have the greatest impact on Japanese automakers because they generate a large portion of their sales in China from the Southern part of the mainland.

Guangqi Honda, Guangqi Toyota, Dongfeng-Nissan, Dongfeng-Honda and FAW-Toyota, have a combined market share of 40% in Guangzhou, according to Nomura and so will be the worst affected.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Financial ‘armageddon’ will happen despite EU deal: Rogers

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Even as markets cheered the agreement by European leaders to allow the direct use of the bloc’s bailout funds to recapitalize struggling banks, well-known investor Jim Rogers told CNBC the move does nothing to help solve the region’s biggest problem, which is its high debt levels.

“Just because now you have a way to get them (the banks) to borrow even more money, this is not solving the problem, this is making the problem worse,” Rogers said on Friday.

“People need to stop spending money they don’t have. The solution to too much debt is not more debt. All this little agreement does is give them (banks) a chance to have even more debt for a while longer,” he added.

After negotiating late into the night, European policymakers agreed on Friday morning that the bloc’s bailout fund, the European Stability Mechanism (ESM), would be able to lend directly to recapitalize banks without increasing a country’s budget deficit, and without preferential seniority status.

Summit leaders also agreed that euro area rescue funds could also be used to stabilize bond markets without forcing countries that comply with EU budget rules to adopt extra austerity measures or economic reforms.

Countries such as Spain and Italy have been burdened with sky-high borrowing costs – levels seen as unsustainable for governments in the long term.

Rogers argues that the deal does not improve the solvency of indebted nations such as Spain. Spain’s central government budget deficit has soared to 3.41% of GDP in the first five months of 2012, above the EU limit of 3%.

He adds that the governments need to stop coming to the rescue of failing banks, even if it results in “financial Armageddon.”

“What would make me very excited is if a few people went bankrupt or a few people started paying off their debt. We are going to have financial Armageddon anyways, when the rest of the world is not going to give these people any more money.”

“What are you going to do in two, three, four years when the market suddenly says ‘no more money’ and the Germans don’t have more money and the American debt has gone through the roof.”

Rogers says the market euphoria brought on by the news, which saw a surge in Asian stocks, the euro and risk assets like oil, will not last.

“How many times has this happened in the last three years – they (EU leaders) have had a meeting, the markets have rallied, two days later the market says wait a minute this doesn’t solve the problem,” he said.

Rogers, who is an advocate of commodities-based investing, says he is not adding any positions at the moment.

“I own commodities, I’m delighted they are going up today – they are going up a lot. I’m not jumping into anything.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why Australia’s central bank won’t make three cuts in a row

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Easing inflation and weak economic data out of key export destination China, is unlikely to push Australia’s central bank to cut interest rates at its next meeting on Tuesday.

The Reserve Bank of Australia is widely expected to hold interest rates at 3.5% after it cut rates by a total 75 basis points at its two previous meetings.

On Monday, a private gauge of Australian inflation showed that consumer prices had dipped 0.2% in June taking the annual rate down to 1.6%, well under the RBA’s target range of 2-3%. While factory activity in China – the country’s biggest trading partner – shrank at its fastest pace in seven months in June.

However, economists say improving economic data out of Australia make a case for the RBA to stand pat on rates.

“The RBA is not rushing to cut rates again in July, especially as unemployment remains low and GDP is back growing at an above-trend rate. A sharp deterioration in the European outlook may yet force a cut, but our central case is that rates remain steady at 3.5%,” Kieran Davies, Economist at Barclays, said in note on Monday.

Market pricing currently shows a 22% chance of a 25 basis point cut, down from almost 90% earlier in June, he added.

When the central bank cut rates last month it cited weaker outlook abroad and modest domestic growth. However, the country’s growth data, released a day later on June 6, far outpaced expectations – with the economy expanding at its fastest pace in over four years in the first quarter.

Michala Marcussen, Global Head of Economics at Société Générale, says with the Australian dollar off its peak, it further reduces pressure for an additional rate cut at the moment. Weakness in the currency – which has declined 5% against the US dollar in the last 12 months – makes Australian-made goods more competitive, providing a boost to the export sector.

Davies and Marcussen, however, believe that the RBA will likely retain an easing bias given the uncertainty over Europe.

Central banks in the West, including the European Central Bank and Bank of England, on the other hand, are expected to adopt a dovish stance at their policy meetings this week.

The ECB, which meets on June 5, is forecast to cut rates to a record low of 0.75% from 1%. While, the BOE is seen expanding its asset-purchase program by 50 billion pounds as Britain’s economic growth outlook deteriorates and easing inflation gives the central bank room to offer further support.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

No big stimulus for China even if Europe breaks up

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Even as China’s twin manufacturing surveys dropped to its weakest readings since November, a further sign of a slowdown in its economy, economists do not see major stimulus measures similar to the massive 4-trillion yuan (USD 629.6 billion) stimulus package it passed in 2008.

While a possible collapse of Europe looms, which could trigger a much more aggressive response from China policymakers, a huge stimulus package will not be necessary because indicators such as fixed-asset investment, housing sales, bank credit and exports have stabilized, suggesting that recent monetary policies such as the cuts in banks’ reserve requirement ratios (RRR), are already having an impact.

“In our view, Chinese policymakers recognize that if the euro zone breaks apart, it would not be a short-term development. Therefore, cyclical overreaction would have only limited benefits,” Barclays’ economists Huang Yiping, Chang Jian and Yang Lingxiu wrote in a report.

Instead, it might be better for China to accept slow growth and continue to focus on rebalancing and restructuring its economic model. “Even if it becomes necessary for the government to do more to support growth, we believe it might launch a large program to train migrant workers, instead of undertaking more infrastructure projects,” according to Barclays.

China’s official purchasing managers’ index (PMI) fell to 50.2 in June from 50.4 in May, the National Bureau of Statistics said on Sunday. Although it was the weakest reading since November, it was higher than the 49.8 reading expected by economists in a Reuters poll last week.

Similarly, HSBC’s final June reading for its Purchasing Managers Index, which measures activity in smaller factories in China, was released on Monday and came in at 48.2, compared to a preliminary reading of 48.1 and a final reading of 48.4 in May.

Most of the factories surveyed in this index are in private hands, while the official PMI looks at bigger state-owned manufacturing firms. HSBC’s measurement has been contracting for eight straight months, indicating that the private sector does indeed need more government support.

Barclays believes that Chinese authorities are comfortable with the official reading and that they will support growth by investing more in infrastructure projects, easing monetary policy, fine-tuning restrictions on home purchases and reducing taxes while boosting consumption breaks. There will also be one more interest-rate cut in the third quarter, but they will need to wait for more economic data.

China has so far cut RRR for banks’ three times since November and slashed interest rates once in June, reversing last year’s credit-tightening policy to stimulate economic growth.

Bank Julius Baer’s Research Analyst Alan Lam agree that the extent of the policies by Chinese authorities will be “far less than in 2008” after the global financial crisis.

The Beijing central government has drafted rules to make it harder for local authorities to issue bonds, and that is a sign that they don’t want to encourage too much fixed-asset investments for the rest of the year, Lam said. They will however continue easing monetary policy to boost liquidity, he added.

“We believe that the chance of People’s Bank of China to cut reserve requirement ratio has increased in next month,” Lam said. “Current market consensus is looking for two to three more rounds of reserve requirement ratio (RRR) cut (by 50 basis points each) before the end of this year.”

ANZ Research is equally bullish, adding that the PMI reading suggests that the manufacturing is continuing to expand, albeit at a “more moderate pace”, according to Li-Gang Liu, Chief Economist for Greater China at ANZ Research. He does not believe that a huge stimulus is warranted, instead, more lending is needed to boost the private sector.

Nonetheless, ANZ believes that concerns over a marked slowdown in China have eased with the latest official reading and will pick up in the second half.

“We believe that China’s economy has bottomed, and will pick up strongly supported by eased monetary policy and faster implementation of fiscal policy,” Liu said. “At this stage, we still believe an RRR cut is more effective than an interest rate cut (to boost the economy), as it injects more liquidity to the banking system, allowing them to lend more to the private sector.”

– By CNBC’s Jean Chua.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Oil price rebound may not signal trend reversal: Survey

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Oil prices will likely reverse last Friday’s fourth-largest daily gain on record wiith traders saying the surge is unlikely to signal a major shift in the negative trend, according to CNBC’s weekly survey of oil market sentiment.

Friday’s broader market rally after a deal by European leaders to stabilize the region’s banking system sparked off a wave of buying activity in the oil pits as funds scrambled to cover short positions, or bets that prices would fall. The activity sent London Brent crude oil futures surging more than USD 6 a barrel to near USD 98 while US light, sweet crude jumped by more than USD 7 to settle just below USD 85 a barrel – the fourth largest daily gains in dollar terms since the contracts were launched.

But both global benchmarks posted their biggest quarterly declines since the fourth quarter of 2008 due to anemic demand, ample supply and a slowdown in business activity in Europe, the US and China.

This week, exactly 40%, or four out of the ten respondents in the sample group, expect prices to fall while three believe prices will rise and three say they will remain unchanged.

“The European leaders finally proven they can exceed expectations and bought more time by addressing the immediate problem with Spanish banks but a litany of issues still remain,” said Kirk Howell, Chief Operating Officer of SunGard’s Kiodex, who has a ‘neutral’ view in the short term.

“Last week’s break lower followed by unexpected action in Europe and the jump higher Friday very likely caught many participants on the wrong side. Having a sharp gap move on the last day of the quarter led to aggressive short-covering and the 7% move. However, we should still remember WTI still dropped 17% on the quarter. I would be cautious to call a major change in direction just yet.”

Risk events this week, including Thursday’s European Central Bank meeting, the June Non-Farm Payrolls data on Friday from the US and further details from last week’s deal struck at the European leaders summit would keep cyclical commodity markets on edge and may limit any follow-through buying interest, Howell added. “We will be working to establish a direction given the news.”

-By CNBC’s Sri Jegarajah

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow