Market Outlook 1st Sep 2009

NIFTY FUTURES LEVELS

SUPPORT

4659

4630

4601

RESISTANCE

4683

4700

4731

4759
4788

4817

Buy VALECHA ENGINEERING;HYDERABAD INDS

 

Strong & Weak  futures 
This is list of 10 strong futures:

Aban Off shore, India Bulls Retail, Ansal Infra, DCHL, Unitech Ltd, Bhushan Steel, ICSA, Praj Industry, Recltd & GSPL.

And this is list of 10 Weak futures:

Sesa Goa Ltd, Tata Steel, Colpal, Hind Uni Lvr, Federal Bank, Dabur India, Power Grid, Dr Reddy, Sail Ltd & GTL.
Nifty is in Up trend
 

NIFTY FUTURES (F & O): 
Selling may continue up to 4659-4661 zone for time being.

Hurdles at 4683 & 4700 levels. Above these levels, expect short covering up to 4729-4731 zone and thereafter expect a jump up to 4757-4759 zone by non-stop.

Sell if touches 4786-4788 zone. Stop Loss at 4815-4817 zone.

On Negative Side, break below 4630-4632 zone can create panic up to 4601-4603 zone. If breaks and sustains this zone then downtrend may continue.
 
Short-Term Investors:
Bearish Trend. 3 closes below 4623.80 level, it can tumble up to 4092.20 level by non-stop.
SL triggered. 3 closes above 4623.80 level, expect short covering up to 4889.60 level by non-stop.
 
BSE SENSEX:
Lower opening expected. Selling should continue. 

Short-Term Investors:  
Short-Term trend is Bearish and target at around 14235 level on down side.
Maintain a Stop Loss at 15973 level for your short positions too.

 

POSITIONAL BUY:
Buy VALECHA ENGINEERING (NSE Cash) 
Recovery should start.

Mild sell-off up to 89 level can be used to buy. If recovery starts, then it may continue up to 92 level for time being. 

If crosses & sustains at above 95 level then uptrend may continue.

Keep a Stop Loss at 86 level for your long positions too.
 
Buy HYDERABAD INDS (NSE Cash) 

Uptrend may continue.

Mild sell-off up to 403 level can be used to buy. If uptrend continues, then it may continue up to 419 level for time being. 

If crosses & sustains at above 433 level then

uptrend may continue.

Keep a Stop Loss at 389 level for your long positions too.
 
Global Cues & Rupee 
The Dow Jones Industrial Average closed at 9,496.28. Down by 47.92 points.
The Broader S&P 500 closed at 1,020.62. Down by 8.31 points.

The Nasdaq Composite Index closed at 2,009.06. Down by 19.71 points.

The partially convertible rupee INR=IN closed at 48.83/84 per dollar on yesterday, weaker than its previous close of 48.65/66.

 

FUNDS DATA

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	31-Aug-2009	2573.76	2844.61	-270.85

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	31-Aug-2009	1370.83	1352.18	18.65

 

 Interesting findings on web:
A sharp sell-off in Chinese stocks raised fears about China's ability to lead an economic recovery, dragging down equity prices around the world on Monday and knocking crude prices down more than 4 percent on demand worries.

Risk aversion helped drive the yen to a seven-week high against the dollar and to rise against other currencies. The yen was also buoyed by a decisive opposition victory in Japan, which sparked hopes that new policies will help support consumer spending and fuel the economy.

The Shanghai Composite Index .SSEC> fell 6.7 percent to a three-month closing low, adding to August losses that marked the second-biggest monthly loss in 15 years on worries that corporate earnings do not justify stock valuations.

Selling in Asian markets was widespread, hitting consumer discretionary, energy, telecommunications and materials sectors.

"Investors in the United States felt it was important for China to help lead the path to economic recovery," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville. "If their markets are going to misbehave, it opens the question of whether they are going to see a recovery."

After giving the stock market a big gain during August, investors still worried about the economy backtracked on the last day of the month.

Stocks fell in light trading Monday after a 6.7% plunge in China's main stock market unleashed a wave of selling around the world and added to concerns that stocks had rocketed too high, too fast since hitting 12-year lows in March.

China's Shanghai composite index had skyrocketed more than 90 percent from January through early August, which led some investors to wonder whether the country would help lead the world out of a recession. But much of that growth seems to have been propelled by massive government lending programs that officials have begun to rein in. Chinese markets have been sliding since early August, and the index plummeted 6.7 percent on Monday. It is down 23 percent since Aug. 4, sending China into bear-market territory.

On Monday, U.S. stocks fell along with other world markets after shares in Shanghai slid on continued uneasiness about China's economy.

The Shanghai market is down more than 20% from its peak in early August, putting it in bear market territory.

On Wall Street, September -- the worst month on average for the stock market over the last 80 years -- begins today with an expected report on manufacturing that, along with job data due Friday, could upend the market's 6-month-old rally or help push it forward.

The drop in stocks Monday was broad, with all but one of the 10 major industry groups in the Standard & Poor's 500 index falling. Energy and material stocks posted some of the biggest losses as prices for commodities including crude oil and copper slid on concerns that demand from China would fall.

The Dow fell 47.92 points, or 0.5%, to 9,496.28. The S&P 500 index slid 8.31 points, or 0.8%, to 1,020.62, while the Nasdaq composite dropped 19.71 points, or 1%, to 2,009.06.

The Russell 2000 index of smaller companies lost 1.3%.

But all three major indexes gained for the month of August: The Dow rose 3.5 percent, the Nasdaq advanced 1.5 percent and the S&P 3.4 percent. For the Nasdaq and S&P, it was their sixth straight monthly gain. The Dow is up five of the past six months, but this is only the second consecutive monthly gain.

The Standard & Poor's 500 index, which is the basis for many mutual funds, ended August higher to post its sixth straight monthly gain. It is up 50.9 percent since early March, the best run since 1938.

The Standard & Poor's 500 index rose 3.4% in August for its sixth straight monthly gain. It is up 51% since early March, the best six-month run since 1938.

Three stocks fell for every one that rose on the New York Stock Exchange, where volume was light.

The retreat in U.S. stocks shaved some gains from the market's best August since 2000. For the month, the Dow rose 3.5% and the Nasdaq composite index rose 1.5%.

Since its low in March, the Dow is up 45% and the Nasdaq is up 58%.

Shares of commodity producers fell. Aluminum maker Alcoa slumped 3.6%. Freeport-McMoRan Copper & Gold slid 3.8%.

September has been the worst month for the stock market over the past 80 years, and it begins with many analysts already worried that investors have bet too soon on a recovery. Data due Tuesday on manufacturing and employment on Friday could upend the market's six-month-old rally or help push it forward.

The drop in U.S. stocks Monday was broad and a 48-point drop in the Dow Jones industrial average was the biggest in two weeks. Energy and materials stocks fell the most as prices for commodities like crude and copper plummeted.

"The markets have been looking like they've been somewhat reluctant to hold their gains over the last couple of sessions," said Blaze Tankersley, chief market strategist at Bay Crest Partners, adding that the news out of China provided investors with a good excuse to sell.

Two big acquisitions totaling close to $10 billion did little to excite investors. The Walt Disney Co. said it plans to buy Marvel Entertainment Inc. for $4 billion in cash and stock, while oilfield services company Baker Hughes Inc. said it will buy BJ Services Co. in a cash-and-stock deal valued at $5.5 billion.

Investors also looked past a report showing an improvement in Midwest business conditions. The Chicago Purchasing Managers index, which measures business activity in Illinois, Michigan and Indiana, jumped to 50.0 in August from 43.4 in July, ending 10 consecutive months of drops.

The index is considered a precursor to the Institute for Supply Management's manufacturing index, which is due Tuesday. A reading above 50 indicates growth in manufacturing, something that hasn't happened since January 2008.

Trading is expected to be light this week but there are still several important reports on the economy that could sway the market one way or the other.

The most closely watched data will come from the government's monthly jobs report on Friday. Economists are expecting another 220,000 jobs were lost, down from 247,000 in July.

Last month's report showed an unexpected dip in the unemployment rate and investors are anxious to see whether the rate continues to fall. If fewer jobs are being lost, consumers might start to feel comfortable spending again and help get the economy back on its feet.

Analyst reports on Monday perhaps fanned investors' jitters about September, bringing reminders that the month often brings trouble for stocks. It was nearly a year ago that the market slide turned into a plunge with the mid-September collapse of Lehman Brothers and the freeze in credit markets that made the recession tighten.

Sam Stovall, chief investment strategist, U.S. equity research at Standard & Poor's, noted that since 1929 the S&P 500 index has lost an average 1.3 percent for the month. But in the 14 Septembers that followed the end of down markets, the index has gained about 2 percent.

Oil dropped nearly $3, settling below $70 a barrel [US@CL.1  70.17    0.21  (+0.3%)   ] as the selloff in China raised doubts about the recovery here in the U.S. Shares of Dow energy components Chevron [CVX  69.94    -0.74  (-1.05%)   ] and ExxonMobil [XOM  69.28    -0.84  (-1.2%)   ] each lost more than 1 percent.

Financial stocks retreated after their strong rally last week. Rochdale Securities analyst Richard Bove wrote that, in the short term, "a reaction to the recent move up in the stocks may develop." And Barron's recommended profit-taking in Citigroup [C  5.00    -0.23  (-4.4%)   ] and said AIG [AIG  45.33    -4.90  (-9.76%)   ] shares were overpriced after gaining more than 50 percent last week. Citi shares lost 4.4 percent and AIG fell nearly 10 percent.

Morgan Stanley [MS  28.96    -0.55  (-1.86%)   ] shares dropped 1.9 percent after Bank of America-Merrill Lynch downgraded its rating on the stock, in part due to a belief that more investors are turning retail rather and institutional brokerages. BofA-Merrill also said Morgan's shares are no longer undervalued.

Financials have been on such a tear that they locked four of the five top spots on the Dow for August: American Express and Bank of America jumped 19 percent, while Travelers shot up 17 percent, and JPMorgan Chase gained 13 percent.

The nonfinancial in the Dow's top five for August was Boeing, which gained 16 percent.

The bottom five were Verizon, P&G, Coca-Cola, Cisco and ExxonMobil.

The curious rise in government-sponsored entities Fannie Mae [FNM  1.93    -0.11  (-5.39%)   ] and Freddie Mac [FRE  2.29    -0.11  (-4.58%)   ] may be running out as well: FBR Capital said the August surge of the two stocks was based on speculation of a reverse stock split.

Ford [F  7.60    -0.13  (-1.68%)   ] is ramping up production as  new models have been well received, stirring speculation that it may eclipse Toyota for the No. 2 spot.

Still to come this week, we'll get readings on auto sales on Tuesday and the August jobs report on Friday.

Small-cap pharmaceutical Delcath Systems [DCTH  3.60    0.56  (+18.42%)   ] saw its shares soar more than 18 percent Friday after health regulators granted an orphan drug status to doxorubicin, a chemotherapy agent, for the treatment of primary liver cancer.

As the first anniversary approaches of the Lehman Brothers collapse, PriceWaterhouseCoopers says claims against Lehman could reach as much as $100 billion.

Oil, Gold & Currencies:

Oil futures tumbled $2.78 to settle at $69.96 a barrel on the New York Mercantile Exchange.

Gold also fell as the dollar moved higher against other major currencies.

The yen traded near a seven-week high against the dollar amid speculation asset prices are overblown, boosting demand for the relative safety of the Japanese currency.

The yen may extend a two-day advance versus the Singapore dollar after a technical chart signaled the 61 percent rally in Asian stocks since the March low was excessive. The Australian dollar was close to the highest level this year against the greenback on optimism the nation's central bank will shift its bias toward lifting interest rates at today's meeting.

"Investors are turning risk averse amid worries over the sustainability of the economic rebound," said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. "The bias is for the yen to strengthen."

The yen traded at 93.14 per dollar as of 11:05 a.m. in Tokyo from 93.13 in New York yesterday, when it rose to 92.55, the highest level since July 13. The currency was at 133.51 per euro from 133.48. The euro bought $1.4335 from $1.4334.

The Australian dollar fetched 84.39 U.S. cents from 84.39 cents. It reached 84.78 cents on Aug. 14, the highest level since Sept. 22, 2008. It was at 78.60 yen from 78.57 yen.

Japan's currency traded at 64.66 versus Singapore's dollar from 64.61 yesterday, when it advanced to 64.17, the strongest level since July 15. The MSCI Asia Pacific Index of regional shares advanced 0.4 percent today, having rallied 61 percent from a more than five-year low on March 9.

Technical Charts

The index's 14-day stochastic oscillator climbed to 78.8 today from 69.5 yesterday, approaching the 80 threshold that indicates an asset price may have risen too fast and is poised to decline. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in an asset's value.

Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in Australia, making the South Pacific nation's assets attractive to investors seeking higher returns. The risk in such trades is that currency market moves may erase any profits.

Yen strength was limited after a Chinese government report showed the nation's manufacturing expanded at the fastest pace in 16 months in August, allaying concern that the economic recovery may falter.

The official Purchasing Managers' Index rose to a seasonally adjusted 54 from 53.3 in July, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion.

The yen posted a monthly gain in August versus all of the 16 most-traded currencies tracked by Bloomberg except for the New Zealand dollar, rising 1.8 percent against the greenback and 1.1 percent versus the euro. The U.S. dollar declined 0.5 percent against the euro in August.

RBA Meeting

Australia's dollar may gain for a fourth day against its U.S. counterpart on speculation the Reserve Bank of Australia will signal possible increases in its benchmark interest rate, increasing demand for the nation's assets.

RBA Governor Glenn Stevens said Aug. 14 the benchmark rate would rise from its "emergency" setting at a half-century low of 3 percent. Economists in a Bloomberg News survey don't expect a rate change when the bank gives its decision later today.

"The big risk about the RBA today is whether they move to an explicit tightening bias, which would be a big policy turnaround," said Amber Rabinov, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne. "We could see the Aussie dollar head toward 85 U.S. cents."

Bonds:

Demand for the safety of government debt rose, pushing down yields while underscoring investors' uneasiness. The yield on the benchmark 10-year Treasury note fell to 3.4% from 3.45% late Friday.

What to expect:

All those clunkers that were littering car dealers' lots are now temporarily clunking up economic data.

That will be apparent in Tuesday's monthly auto sales, when automakers show temporary outsized gains in August from sales related to the clunkers program. It will also be somewhat apparent as a blip in the Institute of Supply Management manufacturing survey, released at 10 am New York time.

Economists expect the ISM to rise above 50 for the first time in 19 months. A reading over 50 indicates the economy is growing.

Other data Tuesday includes pending home sales and construction spending, also released at 10 am, but the big focus is on ISM. 

A small amount of the improvement in ISM is expected to come from the activity around the spike in auto sales, related to the government's "cash for clunkers" program. Under that program, consumers received a cash incentive to turn in old cars when they purchased some 690,000 new, more fuel-efficient models.

The seasonally adjusted annual rate of auto sales for August is expected to be about 14.3 million, the best rate since April 2008.

Economists had forecast a pickup in auto manufacturing, even without the clunkers program. They also have been watching the early stirrings of a manufacturing recovery to see if it can help lift the rest of the economy.

"The ISM is about good old-fashioned inventory restocking," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. "The clunkers is maybe worth half a point. This is really about inventory restocking."

LaVorgna expects ISM to come in at 52, revised form his earlier forecast of 51. Last month, the reading was 48.9.

"The clunkers aren't going to impact whether you're bullish or bearish," he said.

ISM hit a low of 32.9 in December, 2008. LaVorgna said a primary driver behind the improvement is the increased activity, following the restructuring of GM and Chrysler earlier in the year.

Asia:

Asian shares were mostly higher Tuesday, but gains were limited after Wall Street fell, and investors awaited China's open after Monday's slump. Shipping and steel stocks were early decliners in Tokyo.

Japan's Nikkei 225 was up 0.2% while South Korea's Kospi nudged up 0.4% and Australia's S&P/ASX 200 added 0.3%. New Zealand's NZX-50 though was 1% lower. Dow Jones Industrial Average futures were recently 13 points higher in screen trade.

The Shanghai Composite Index slumped 6.7% Monday amid concerns about share supply and a slowdown in lending growth. They were also awaiting the release later Tuesday of CLSA's Purchasing Managers Index for China.

"China will be the biggest concern today," said Mizuho Securities market analyst Yukio Takahashi. "Should the PMI be horrible, we could have a breakdown in equities and risk (appetite)," added Westpac Bank markets strategist Imre Speizer.

There was already one reading out Tuesday morning on China PMI for August, with the China Federation of Logistics & Purchasing's index hitting 54.0, from 53.3 in July, offering some comfort on the economic outlook.

Shipping and steel stocks were lower in Tokyo, with Mitsui O.S.K. Lines down 2.0% and JFE Holdings 1.9%.

Technology stocks were higher in Korea after recent encouraging results from U.S. technology companies, with Samsung Electronics up 0.4% and Samsung Electro-Mechanics up 1.1%.

In Australia, ANZ was up 0.8% as brokers upgraded their target prices for the stock, though materials and energy stocks were mostly lower on falling commodity prices, with BHP down 0.4% and Woodside Petroleum 1.5% lower.

Investors were awaiting the outcome of the Reserve Bank of Australia's policy meeting Tuesday, with most expecting no change in interest rates.

Shares in New Zealand were lower with Telecom off 1.8% and Contact Energy down 1.0%. PGG Wrightson fell another 2.9%, amid concerns it may raise fresh capital.

Nikkei 225 10,540.61     +48.08 ( +0.46%) (08.25 AM IST)

Japan's Nikkei average danced in and out of positive territory on Tuesday with market players saying that moves in dollar/yen were largely driving the market, along with moves in Chinese stocks.

The benchmark Nikkei .N225 was up 0.5 percent or 48.08 points at 10,540.61.

Fast Retailing Co. (9983) shares traded lower for the fourth straight day Tuesday morning, in advance of the firm's Wednesday announcement of same-store sales data for August.

TCM Corp. (6374) shares rose for the first time in four trading days Tuesday morning, surging 34% from Monday at one point to 188 yen.

Nippon Sheet Glass Co. (5202) shares gained ground for the first time in five trading days Tuesday morning. 

HSI 19823.78 +99.59 +0.5% (08.29 AM IST)

Hong Kong stocks rebounded Tuesday after falling in the previous three sessions as investors looked for bargains in China Petroleum & Chemical Corp., or Sinopec, and China Southern Airlines after recent sharp losses. The Hang Seng Index rose 0.9% to 19,899.48 in early action, while the Hang Seng China Enterprises Index gained 1% to 11,383.75, aided by an advance in a volatile Shanghai market. Shares of China Southern /quotes/comstock/22h!e:1055 (HK:1055 2.41, -0.03, -1.23%) /quotes/comstock/13*!znh/quotes/nls/znh (ZNH 15.51, -0.73, -4.50%) rose 1.6% and Sinopec /quotes/comstock/22h!e:386 (HK:386 6.47, 0.00, 0.00%) /quotes/comstock/13*!snp/quotes/nls/snp (SNP 83.95, -2.46, -2.85%) added 1.4% in Hong Kong. But in Shanghai, Sinopec dropped 0.7% after sliding in the previous three sessions on continued disappointment that Beijing hasn't allowed fuel price increases as expected and may limit future price hikes. The Shanghai Composite rose 0.4% in early morning trade after moving in both directions. The benchmark plunged 6.7% in the previous session.

Hang Seng Index opens 237 points higher on Tue

Hong Kong stocks rose on Tuesday morning, with the benchmark Hang Seng Index opening 237 points higher at 19,961.

The Hang Seng China Enterprise Index, which tracks the overall performance of 43 mainland Chinese state-owned enterprises on the Hong Kong Stock Exchange, opened 164 points higher at 11,442.

Sinopec<600028><0386><SNP> rose 2.01% and opened at HK$6.6. PetroChina<601857><0857><PTR> increased 1.64% from the previous closing to HK$8.7.   

SSE Composite  2673.73  + 0.22 (08.31 AM IST)

Chinese stocks open 0.7% lower on Tue

Chinese stocks opened lower on Tuesday morning, tracking losses from the previous closing.

The benchmark Shanghai Composite Index, which covers both A shares and B shares on the Shanghai Stock Exchange, opened at 2,649.17 points, down 0.7% or 18.58 points from the previous closing.

The Shenzhen Component Index on the smaller Shenzhen Stock Exchange opened 1.15% or 122.04 points lower at 10,463.04 points.

China's key stock index opened down 0.7 percent on Tuesday, led by Yangtze Power (600900.SS), as negative factors including weak investor sentiment and the stock regulator's continued reviews of initial public offerings offset a positive purchasing managers' index.

The Shanghai Composite Index .SSEC opened at 2,649.168 points, after diving 6.74 percent on Monday and posting its second-biggest monthly loss in 15 years in August, hit by new share supplies and high share valuations that got ahead of earnings improvements.

Yangtze Power, the most active stock in early trade, tumbled 4.29 percent to 12.72 yuan after it said its shareholders had approved a plan for a private share placement.

China's stock regulator said late on Monday it would review on Friday an application by China National Chemical Engineering Co (CNCEC) for a stock IPO worth around $428 million.

State media reported on Tuesday that China's four biggest state-owned banks issued only 135 billion yuan in new loans in the first 30 days of August, with all banks lending less than 300 billion yuan in the month, down sharply from July's already small 356 billion yuan.

The small lending figures were in line with an earlier Reuters report on August lending.

"Reviewing an IPO after a steep market fall, plus shrinking bank lending -- all this negative news is leading the index to fall and fill a gap on the charts from late May around 2,635 points," said Wen Lijun, analyst from Nanjing Securities.

She added, however, that the steep fall in the Chinese stock market did not necessarily reflect expectations or developments regarding China's economic recovery.

Indeed, China's official purchasing managers' index (PMI) for August inched up to 54.0 from July's 53.3.

It was the sixth straight month that the official PMI stood above 50, indicating an expansion of activity in the manufacturing sector. A reading below 50 suggests contraction. A record low of 38.8 was plumbed in November.

China's stock regulator said late on Monday it would on Friday review an application by China National Chemical Engineering Co (CNCEC) for a stock initial public offering (IPO) worth around $428 million.

The China Securities Regulatory Commission (CSRC) has been continuously reviewing and pushing new offers into the market since it resumed IPOs in June after a 10-month suspension.

Worries, however, over too many new share supplies helped push China's key stock index down 22 percent in August to record its second-biggest monthly loss in 15 years.

China Chemical, a construction and engineering company focused on the domestic chemical industry, needs around 2.92 billion yuan ($428 million yuan) to buy equipment and supplement working capital for key projects, it said in a draft prospectus.

It plans to issue up to 1.23 billion A-shares denominated in yuan, or 25 percent of its expanded capital after the IPO, for a listing on the Shanghai Stock Exchange, it said in the prospectus published on the CSRC's website, www.csrc.gov.cn.

($1=6.83 Yuan) 

Home Inns mulls Taiwan expansion plan: report.

FIL raises shareholding in ZTE to 5.4%.

Yanchang Petroleum to issue RMB 2 bln in financing bills.

BoCom eyes 60% rise in assets under management.

Sina Q2 net profit hits US$13.30 mln.

China Railway sees steady growth in H2.

China Mobile launches Ophones.

PetroChina to buy RMB 21.99 bln in assets from CNPC.

China's NDRC to subsidize loans for raw material imports.

Financial Street to issue RMB 5.6 bln in corporate bonds.

Shareholders back China Pacific HK share offer

Shareholders of China Pacific Insurance have approved the firm's plan to float shares in Hong Kong, the company said on Tuesday, in an offer that analysts have estimated to be worth around 24 billion yuan.

China Manufacturing Grows at Fastest Pace Since 2008

China's manufacturing expanded at the fastest pace in 16 months in August as the economy maintained momentum after record lending in the first half of the year.

The official Purchasing Managers' Index rose to a seasonally adjusted 54 from 53.3 in July, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion.

Investors and economists are split on the outlook for the world's third-biggest economy as banks rein in credit growth to counter the risk of asset bubbles and bad loans. The plunge by the Shanghai Composite Index into a bear market yesterday contrasted with a Bloomberg News survey showing economists expect the government to top its 8 percent economic growth target this year.

"The recovery is still on track," said Paul Cavey, an economist with Macquarie Securities in Hong Kong.

The benchmark stock index tumbled 6.7 percent yesterday, capping its biggest monthly loss since October.

New loans plunged to 355.9 billion yuan ($52 billion) in July, less than a quarter of June's level, and may slump to 200 billion yuan in August, the Beijing-based business magazine Caijing reported yesterday without citing anyone.

Domestic Demand

Subsidies for purchases from cars to home appliances are aiding manufacturers by stoking domestic demand as the global recession cuts exports. Shenzhen-based BYD Co., a Warren Buffett-backed maker of cars and rechargeable batteries, said first-half profit almost doubled as stimulus measures boosted sales.

The State Council, China's cabinet, said last month that it saw signs of a recovery in manufacturing and also announced plans to curb overcapacity in the steel and cement industries.

China's economic growth accelerated to 7.9 percent in the second quarter from a year earlier on the nation's $585 billion stimulus package and more than $1 trillion of new loans in the first half. The 6.1 percent expansion in the first three months of the year was the weakest in almost a decade.

Growth will continue to quicken in the third and fourth quarters, reaching 8.3 percent for the year, according to the Bloomberg survey of 21 economists.

In contrast, former Morgan Stanley Asia economist Andy Xie predicts the Shanghai Composite Index may fall a further 25 percent because China's recovery "isn't sustainable."

Government efforts to control lending have included requiring lenders to raise reserves to 150 percent of non- performing loans by the end of this year. Bank of China Ltd., which advanced the most new credit in the first half, said Aug. 27 that it will slow loan growth in the second half and improve loan quality.

China official PMI rises for sixth straight month

One of two competing indexes measuring manufacturing activity in China indicated expansion in August, marking the sixth consecutive month activity has held above the boom-or-bust level, suggesting industrial activity will continue to pick up speed in coming months.

The Purchasing Managers Index rose to rose to 54.0 in August from 53.3 in July, the China Federation of Logistics and Purchasing said Tuesday. The index came in below 50 from October to February.

August's 0.7 percentage-point rise outpaced 0.1 percentage point gains in both June and July. The index came in below 50 from October to February.

"Industrial activity should continue to grow in the coming months, driven by strength in domestic demand and a rebound in exports," wrote J.P. Morgan's Jing Ulrich, managing director and chairman of China equities in Hong Kong.

The CFLP conducts its PMI survey on behalf of China's National Bureau of Statistics. A competing PMI, previously issued by financial firm CLSA and this month being taken over by banking giant HSBC, is due out later Tuesday. 

HSBC China PMI at 55.1 in August from 52.8 in July.

China funds cut stock weightings on liquidity fears

Chinese fund managers reduced their recommended allocation to equities for the first time in six months, on concerns that a possible liquidity tightening may sap demand for stocks, the latest monthly Reuters poll of fund managers shows.

Average weighings for stocks within a balanced portfolio over the next three months dipped to 83.9 percent from a high of 84.4 percent last month, the first drop since February. A boom in initial public offerings was also cited by some fund managers as a risk to the stock market, which rallied 60 percent in the first six months of this year on ample liquidity and an improving economy.

The fund managers also raised their suggested bond allocation to 4.8 percent, from 4.4 percent last month, while increasing their recommended cash holdings to 11.3 percent, from 11.1 percent. China's IPO resumption in June is also weighing on the market with an influx of equity supplies. Metallurgical Corp of China, which plans to raise about 16.85 billion yuan ($2.47 billion) via a Shanghai IPO, said on Monday it would take subscriptions from investors next week. Energy stocks were the second most heavily favoured, with a suggested weighting of 12 percent. reuters

Shanghai Index May Drop 25% on Economy, Xie Says

The Shanghai Composite Index, the world's worst performer in August, may fall another 25 percent as China's economic recovery isn't "sustainable," former Morgan Stanley Asian economist Andy Xie said.

The measure plunged 6.7 percent to 2,667.75 yesterday, the most since June 2008, and entered a bear market on concern a slower lending growth may derail a rebound in the world's third- largest economy. Xie said the index "should be 2000 or less."

"The market is in deep bubble territory," Xie, 49, who correctly predicted in April 2007 that China's equities would tumble, said in an interview with Bloomberg Television.

China's retreat sent the MSCI World Index of 23 developed nations down 0.8 percent, while MSCI's emerging-market index lost 1.5 percent, the biggest drop in two weeks. The Bank of New York Mellon China ADR Index, tracking American depositary receipts of Chinese shares, lost 2.3 percent, led by commodity producers.

The Shanghai gauge slumped 22 percent in August, the biggest decline among 89 benchmark indexes tracked by Bloomberg, as banks reined in lending to avert asset bubbles and policy makers advised industries such as steel and cement to curb overcapacity. The decline stopped a rally that had sent the measure up 103 percent from a November low on prospects the government's 4 trillion yuan ($586 billion) stimulus program and a record amount of new credit would ensure the economy grows at least 8 percent this year.

Strong Numbers

"The local market bears are convinced that tightening is already underway," said Howard Wang, head of the Greater China team at JF Asset Management, which oversees $50 billion. Only "a very strong set of macro numbers in August" or "stronger statements from central authorities" would change this trend, Wang said.

Still, Chinese stocks are trading at the steepest discount in the world compared with analysts' price targets after the month-long slump. The gap of 13 percent below analysts' combined price targets is the largest among the world's 10 largest markets, data compiled by Bloomberg show.

Equities in China remain "a bright spot" among global stocks because of the nation's strong growth potential, Goldman Sachs Group Inc. said yesterday.

'Exit Strategy'

"We think the market concerns about a near-term 'exit strategy' appear premature as the government remains pro- growth," Thomas Deng and Kinger Lau, analysts at Goldman Sachs, wrote in a research note.

Goldman Sachs has boosted its growth forecasts for China's economy to 9.4 percent this year from an earlier estimate of 8.3 percent, it said in the note. Gross domestic product may increase 11.9 percent in 2010, higher than an earlier estimate of 10.9 percent, it added.

The People's Bank of China will also have "very limited room" to raise interest rates by the end of this year, Deng and Lau wrote.

"The A share market is undergoing a correction rather than a bursting of the bubble," said Richard Gao, who helps manage $2.8 billion at Matthews International Capital Management LCC in San Francisco. "Short term trading will be very volatile but we believe a strong economic recovery is underway in China and remain quite positive on the long-term growth potential."

The government will maintain its fiscal and monetary policies because the economy faces many "uncertainties," Premier Wen Jiabao said this month. Economic growth will slow in the fourth quarter as exports remain mired in a slump, Xie said.

"The recovery is not sustainable," Xie, who resigned as Morgan Stanley's chief economist in Asia in 2006 and now works as an independent economist, said in the interview yesterday from Shanghai.

Expectations

"This is a short-term negative," said E. William Stone, who oversees $101 billion as chief investment strategist at PNC Wealth Management in Philadelphia. "Expectations have been too high that China would be a driver of everything. Much has to come out of the expectations balloon."

At least 150 stocks on the 898-member Shanghai index dropped by the daily 10 percent limit. Industrial Bank Co. and Aluminum Corp. of China Ltd. tumbled by the permitted cap after Caijing magazine reported new loan growth this month may be almost half that of July. Lower profits dragged Baoshan Iron & Steel Co., the nation's biggest steelmaker, and China Southern Airlines Co. down at least 7 percent.

The Shanghai index trades at 29.39 times reported earnings, according to Bloomberg data. The MSCI Emerging Markets Index, a 22-country benchmark, trades for 18.9 times profit.

New Loans Drop

China may have 200 billion yuan of new loans in August, the Beijing-based Caijing reported today on its Web site. That compares with 7.4 trillion yuan for the first half of 2009 and 355.9 billion yuan in July alone. The government plans to tighten capital requirements for financial institutions, three people familiar with the matter said this month.

An estimated 1.16 trillion yuan of loans were invested in stocks in the first five months of this year, China Business News reported June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council.

"The government is now pulling the plug on liquidity," said Xie, who is a guest columnist for Caijing. "Hopefully, it's not too late."

Treasuries Little Changed, Snapping Gain, Before Factory Report

Treasuries were little changed, following two months of gains, on speculation a private report today will show U.S. manufacturing expanded for the first time in 19 months.

A revival in the U.S. economy from the steepest economic recession since the 1930s is fueling speculation investors will seek higher yields outside of government bonds. The Institute for Supply Management's factory gauge increased to 50.5 in August from 48.9 in July, according to the median estimate in a Bloomberg News survey before the report today. Fifty is the dividing line between expansion and contraction.

"Yields should go up," said Kei Katayama, who oversees $1.6 billion of non-yen debt in Tokyo as leader of the foreign fixed-income group at Daiwa SB Investments Ltd., part of Japan's second-biggest investment bank. "The economic figures have been better."

The yield on the 10-year note rose two basis points to 3.41 percent as of 11:31 a.m. in Tokyo, according to BGCantor Market Data. The 3.625 percent security maturing in August 2019 fell 1/8, or $1.25 per $1,000 face amount, to 101 25/32.

MSCI's Asia Pacific Index of regional shares advanced 0.2 percent, recouping losses from yesterday and helping curtail demand for debt.

Ten-year yields will climb to 3.76 percent by year-end, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings. Katayama said he is avoiding the longest maturities, those that will fall most if yields rise.

Fed Buying

The Federal Reserve is scheduled to buy Treasuries due from May 2012 to November 2013 today as part of its plan to cap borrowing costs, according to its Web site.

Another industry report today will show pending home sales grew for a sixth month, according to a separate Bloomberg survey.

"Housing appears to be bottoming," said Michael Pond, an interest-rate strategist at Barclays Capital Inc., one of the 18 primary dealers that are required to bid at government bond sales. "We expect the data to continue to come in strong. Bond yields will move much higher."

Ten-year rates will climb to 4.2 percent, Pond said yesterday on Bloomberg Radio.

The financial crisis started with the collapse of the U.S. property market in 2007 and has triggered $1.61 trillion of writedowns and credit losses at banks and other financial institutions.

Stock Rally

Treasuries rose yesterday on speculation a six-month stock rally outpaced prospects for economic growth.

Demand also advanced on the last day of the month as investors bought U.S. debt to match changes in the indexes they use to gauge their portfolios' performance.

Yields on two- and 10-year notes touched the lowest level since Aug. 21 yesterday as stocks dropped worldwide.

"It's not a matter of whether or not we're going to come out of recession or see a significant number of defaults in corporates; it's really how quickly growth is going to come back," Ira Jersey, head of U.S. interest-rate strategy in New York at RBC Capital Markets Corp., said in a Bloomberg Radio interview. The company is also a primary dealer. "The question is, have risky assets gotten ahead of themselves?"

Treasuries returned 0.9 percent in August, adding to a 0.4 percent gain in July, according to Merrill Lynch & Co.'s U.S. Treasury Master index. The gain is the first two-month advance since November and December. 
 
INVESTMENT VIEW
Jai Balaji Industries-BUY
 
Focus shifting from capacity addition to profitability: Jai Balaji Industries (JBIL) has built capacities aggressively in the last 2-3 years at a capex of Rs16b. This has enabled it to reach a critical size of 1mtpa - the largest among listed secondary steel producers, and seek large allocation of coal blocks. Now, its focus is shifting towards reducing costs and developing coal blocks to fuel earnings growth.
 

Expect strong earnings growth, going forward: Over FY09-12, volume growth of 20-22% from existing assets, contribution from value-added products like DI pipe, and cost reduction through captive coal mine and captive power plants will drive strong earnings growth.

 

Consequently earnings will quadruple over FY10-12. JBIL intends to deploy its cash flows during the period towards the development of various coal assets. Its 2mtpa sponge iron capacity and 400MW captive power plant at the Greenfield site of Purulia would drive earnings growth from FY13.

 

Valuations attractive; upgrading to Buy: JBIL's earnings were adversely impacted in the last 2-3 quarters due to high volatility of steel prices and high cost inventories. Pressure on margins has eased due to improvement of steel prices and depletion of high cost inventories. The stock trades at 1.3x FY11E BV, with FY11E RoE of over 20%.

 

Buy.

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)
 
--
Arvind Parekh
+ 91 98432 32381

Market Outlook for 31st Aug 2009

 

INTRADAY calls for 31st Aug 2009
BE CAUTIOUS ON MARKET. HIGH VOLATILITY WITH PROFIT EXPECTED IN INTRA. SO, DON'T WAIT FOR YOUR TARGET ON BOTH BUY AND SELL, THEN AND THERE PROFIT BOOKING IS ADVISABLE, MOSTLY MARKET MAY TRY CLOSE FLAT/+VE, MAY BE RANGEBOUND FOR 40-50 POINTS ON BOTH SIDE

SHORT PNB-678 for 660-655- with sl 685
SHORT SBI-1781 for 1755-1749- with sl 1800

SHORT Dhampsug-91 for 87-85- with sl 93
SHORT APIL-519 for 502-500- with sl 525

BUY PRAJInd-101 arround 97-95 for 104-106+ with sl 93
BUY IFCI-55 arround 53-52 for 55-57-59+ with sl 49

 

MSCI to add Unitech, Mahindra Satyam to global standard indices from today

 Allied Digital board approves:
-QIP issue up to $50 m
-Stock split from Rs 10 to Rs 5
-Issue of 1 lakh shares on preferential basis to Bennett, Coleman & Co

stocks that are in news today:
Govt may divest 10% in SAIL through FPO (follow-on issue)
ONGC says in talks with Rajasthan govt for economic viability of setting up refinery
Maharashtra govt halts all development projects including Mantralaya project awarded to Indiabulls till elections
Govt looking to divest another 10% in NTPC – BS
Sterlite-Asarco final hearing today – BS
TCS says see revenue of $30-100 million in 3-5 years from BP deal
IRB Infrastructure selected for Talegaon Amravati road project worth Rs 800 crore
Sun Pharma files new application to restart HSR (Hart-Scott-Rodino) waiting period for Taro tender offer
Dish TV to raise Rs 1000 crore via FCCBs – BS
Delivery of crude to MRPL slated for October – BL

 

 Strong & Weak  futures 
This is list of 10 strong futures:

Aban Off shore, Ansal Infra, India Bulls Retail, Bhushan Steel, DCHL, Cesc Ltd, Orchid Chem, HCL Tech,Tata Motors & HDIL. 

And this is list of 10 Weak futures:

Sesa Goa Ltd, Federal Bank, Hind Petrol, Colpal, Bajaj Hind, Hind Uni Lvr, Power Grid, Dabur India, Ambuja Cement & Balrampur Chini.
 Nifty is in Up trend
 

 

NIFTY FUTURES (F & O): 
Below 4716 level, expect profit booking up to 4673-4675 zone and thereafter slide may continue up to 4631-4633 zone by non-stop.

Hurdle at 4748 level. Above this level, rally may continue up to 4750-4752 zone and thereafter

expect a jump up to 4764 level by non-stop.

Multiple resistance zones at 4791-4793 zone & 4805-4807 zone. Cross above these zones can take it up to 4847-4849 zone. Supply expected at around this zone and have caution.

On Negative Side, rebound expected at around 4617-4619 zone. Stop Loss at 4576-4578 zone.
 
Short-Term Investors:
 
Bearish Trend. 3 closes below 4623.80 level, it can tumble up to 4092.20 level by non-stop.
SL triggered. 3 closes above 4623.80 level, expect short covering up to 4889.60 level by non-stop.
 
BSE SENSEX:
Lower opening expected. Profit Booking should start. 

Short-Term Investors: 
Short-Term trend is Bearish and target at around 14235 level on down side.
Maintain a Stop Loss at 15973 level for your short positions too.

3 closes above 15973 level, expect short covering up to 16842 level by non-stop.

 

 
INVESTMENT BUY:
Buy ABG SHIPYARD (NSE Cash) 
Uptrend may continue.

Mild sell-off up to 217 level can be used to buy. If uptrend continues, then it may continue up to 226 level for time being. 

If crosses & sustains at above 232 level then uptrend may continue.

Keep a Stop Loss at 211 level for your long positions too.
 
Buy OMAXE (NSE Cash) 

Uptrend may continue.

Mild sell-off up to 122 level can be used to buy. If uptrend continues, then it may continue up to 130 level for time being. 

If crosses & sustains at above 135 level then uptrend may continue.

Keep a Stop Loss at 117 level for your long positions too.
 
Global Cues & Rupee 
 he Dow Jones Industrial Average closed at 9,544.20. Down by 36.43 points.
The Broader S&P 500 closed at 1,028.93. Down by 2.05 points.

The Nasdaq Composite Index closed at 2,028.77. Up by 1.04 points.

The partially convertible rupee INR=IN closed at 48.65/66 per dollar on Friday, stronger than Thursday's close of 48.91/92. 

 

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	28-Aug-2009	2128.65	1574.34	554.31

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	28-Aug-2009	1340.7	1335.24	5.46

 

 Interesting findings on web:
  The major indexes gave up early gains Friday to finish flat for the session and post a modest advance for the week.

With end-of-summer vacations in full swing, U.S. stocks markets face a sluggish week capped by a potential burst of activity when the government releases its August jobs report.

The Dow drops 36 points to 9,544, breaking an eight-day winning streak.

Trading was quiet, as it has been all week, as summer vacations kept many traders out of the market. With fewer participants, the market lost some of its recent momentum that had sent the major indexes up about 5 percent in less than two weeks.

Stocks managed to carve out their sixth weekly advance in seven weeks, but the gains were minimal.

Wall Street turned cautious this week as investors worried that the market's rally, now closing in on six months, may have run its course.

Investors are especially nervous as they head into September, historically the stock market's worst month. Last September, which saw the collapse of Lehman Brothers and the kickoff of the worst financial crisis in decades, is still fresh in investors' minds.

"Tuesday begins one of the most feared months of the calendar," said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors.

The first week of September 2009 will bring a key report on manufacturing activity, which has been improving, as well as the Labor Department's tally of job losses in August — the month's most telling piece of economic data. Last month, news that employers cut fewer jobs in July and the unemployment rate fell sent stocks soaring.

Stocks gave up early gains to finish nearly flat in the week's final session after data on spending and income provided mixed signals on the economy's direction. The Commerce Department said Americans' personal expenditures increased a modest 0.2% last month, hitting Wall Street's estimate, but personal income was flat.

The major indexes liked the spending report, but a weak consumer sentiment reading from the University of Michigan scuttled the early advance. Stocks rose in the first hour of trading with the Nasdaq up more than 1% before falling into negative territory and churning to a muddled finish.

Investors balked Friday at extending Wall Street's recent rally, but stocks still managed to carve out their sixth weekly advance in seven weeks.

For the day, major indexes finished mixed after losses among healthcare stocks offset gains in technology companies.

Light volumes have made for choppy trading in recent days, with benchmark indexes flip-flopping throughout the course of the day. Activity has clustered on a few financial stocks, including Citigroup /quotes/comstock/13*!c/quotes/nls/c (C 5.23, +0.18, +3.56%) and Bank of America Corp. /quotes/comstock/13*!bac/quotes/nls/bac (BAC 17.98, +0.06, +0.33%)

That trend is likely to continue into the first week of September, despite a slate of key economic data, as more investors head to the beach.

"It's usually one of the slowest weeks of the year," said Michael O'Rourke, chief market strategist at New York institutional brokerage BTIG on Friday, as he prepared to leave the office for a family vacation at the New Jersey shore.

On Friday the Dow fell 36.43 points, or 0.4%, to 9,544.20. The Standard & Poor's 500 index fell 2.05 points, or 0.3%, to 1,028.93, while the Nasdaq composite index rose 1.04 points, or 0.1%, to 2,028.77.

For the week:

The Dow is up 38.24, or 0.4 percent.

The S&P is up 2.80, or 0.3 percent.

The Nasdaq is up 7.87, or 0.4 percent.

For the year:

The Dow is up 767.81, or 8.7 percent.

The S&P is up 125.68, or 13.9 percent.

The Nasdaq is up 451.74, or 28.6 percent.

With one trading day left in August, the Dow and the S&P 500 are up more than 4% for the month, putting each index on track to have its best August since 2000.

Most of the month's gains were made last week, after Federal Reserve Chairman Ben S. Bernanke's upbeat assessment of the economy sent investors clamoring for stocks.

The market got an initial boost after Santa Clara, Calif.-based Intel, the world's largest maker of computer chips, raised the top end of its sales forecast for the current quarter from $8.8 billion to $9.2 billion. Shares of Intel climbed 4%.

The upbeat news comes after Dell posted sales and earnings that beat expectations just before the close yesterday. The group, which was supposed to report after the close, said net income fell 23% to $472m on sales down 22% to $12.76bn, which was better than the expected $12.59bn.

Shares in the world's number one appliance maker Whirlpool rose after it said it is to shut its Indiana factory, moving some production to Mexico.

Merck [MRK  32.32    -0.55  (-1.67%)   ] and McDonald's [MCD  56.07    -1.09  (-1.91%)   ] led the losers on the Dow, which fell after posting gains approaching 0.5 percent in the first minutes of trading. Boeing [BA  51.04    -0.78  (-1.51%)   ] gave back some gains as well, the day after the aerospace company surged on positive news about its Dreamliner aircraft.

Technology stocks had been the lone bright spot, helped by Dell [DELL  15.93    0.276  (+1.76%)   ]. In after-the-bell earnings Thursday, the computer maker reported a stronger than expected quarterly profit as well as signs that its business is stabilizing.

Marvell Technology [MRVL  15.36    0.73  (+4.99%)   ] also helped offset the damage, posting a revenue drop of nearly 25 percent but raising outlook.

Pharmaceutical stocks besides Merck also were faring poorly, with Bristol-Myers Squibb [BMY  22.12    -0.66  (-2.9%)   ] off more than 2 percent after Morgan Stanley cut the company to "equal weight."

Elsewhere, shares of Ford [F  7.73    0.06  (+0.78%)   ] gained after the automaker said it expected monthly sales to rise for the first time in two years.

Luxury retailer Tiffany [TIF  37.57    3.82  (+11.32%)   ] reported that its profit fell 30 percent, but that was better than analyst estimates. The earnings beat followed a familiar pattern for the second quarter—strong bottom-line profit yet weak top-line revenue—but the company's shares jumped.

Few earnings results were announced Friday but J. Crew gained 6% in regular trading after beating analyst estimates Thursday evening. Tiffany & Co. ( TIF - news - people ) finished up 11.3% after beating expectations Friday morning.

Online broker E-Trade Financial ( ETFC - news - people ) saw its shares rise Friday after convincing its creditors to trade their debt for ownership of the troubled company. On Tuesday E-Trade managed to swap $1.7 billion it owed bondholders for common stock in the firm. Shares gained 13.1% on Friday as traders rushed into the volatile issue sensing that the worst is over for the brokerage.

Bebe Stores ( BEBE - news - people ) lost ground after the clothing chain told Wall Street analysts Thursday evening it would likely break even or lose money in the current quarter. The firm also reported a loss for the previous quarter as sales fell. Shares gave up 2.5% in regular trading and moved lower after the bell.

Retailer J. Crew was rose after it posted better-than-expected quarterly results. 

S&P 500 – Risers

E*Trade Financial Corp. (ETFC) $1.67 +15.17%

Tiffany And Co (TIF) $37.43 +10.90%

Qlogic Corp. (QLGC) $16.18 +9.77%

CIT Group Inc. (CIT) $1.68 +7.69%

American International Group Inc. (AIG) $51.10 +6.81%

Jds Uniphase Corp. (JDSU) $7.08 +6.10%

Adv Micro Devices (AMD) $4.46 +5.44%

Genworth Financial (GNW) $10.11 +5.27%

Micron Technology (MU) $7.56 +5.00%

Nvidia Corp. (NVDA) $14.69 +4.88% 

S&P 500 - Fallers

Novell Inc. (NOVL) $4.49 -4.58%

Goodyear Tire Rubber (GT) $16.33 -3.96%

Lorillard Inc. (LO) $72.43 -3.03%

Cigna Corp. (CI) $29.67 -2.94%

Bristol-Myers Sqibb (BMY) $22.12 -2.90%

Supervalu Inc. (SVU) $14.49 -2.89%

Unitedhealth Group (UNH) $28.18 -2.63%

Motorola Inc. (MOT) $7.15 -2.59%

Leucadia Natl Corp. (LUK) $24.91 -2.54%

M B I A Inc. (MBI) $6.42 -2.43% 

Dow Jones I.A - Risers

Intel Corp. (INTC) $20.25 +4.01%

Travelers Company Inc. (TRV) $49.62 +0.85%

Alcoa Inc. (AA) $12.50 +0.81%

American Express Inc. (AXP) $34.22 +0.77%

Bank Of America Corp. (BAC) $18.02 +0.56%

Cisco Systems Inc. (CSCO) $22.00 +0.55%

Home Depot Inc. (HD) $27.69 +0.51%

Du Pont E I De Nemours and Co. (DD) $32.44 +0.34%

Procter & Gamble Co. (PG) $53.19 +0.25% 

Dow Jones I.A - Fallers

McDonald's Corp. (MCD) $56.07 -1.91%

Merck & Co. Inc. (MRK) $32.32 -1.67%

Boeing Co. (BA) $51.04 -1.51%

JP Morgan Chase & Co. (JPM) $42.92 -1.22%

Exxon Mobil Corp. (XOM) $70.12 -1.04%

International Business Machines Corp. (IBM) $118.22 -1.01%

AT&T Inc. (T) $26.21 -0.79%

Coca-Cola Co. (KO) $49.06 -0.77%

Caterpillar Inc. (CAT) $46.75 -0.70%

General Electric Co. (GE) $14.10 -0.63%

All major US indices continue to trade within their best 6-month rally since October, 1933, and are tracking to close up 2.5% or greater for the month.

On a month-over-month basis, both indexes are on track for their best monthly performance since July of this year.

In August, the Dow has traded in positive territory 64.5% of the time, gaining on average 1.25%.  The S&P has been on the black 59.3% of the time, gaining on average 0.84%.

The Nasdaq is on track for its best August performance since 2006, and its best monthly performance since July as well.

In August, the Nasdaq has been positive for the month 55.3% of the time, gaining on average 0.37%.

Since the March 9th lows, the S&P is up 52.09%, the Dow is up 45.78%, and the Nasdaq is up 59.92%

Index Impact:

Boeing (BA) had the most positive impact on the Dow, up over 11% for the week.

Month-to-date, Bank of America (BAC) is the top Dow performer by % gain, up almost 22%.

Year-to-date, American Express (AXP) continues to be the top Dow performer by % gain, up almost 85% .

21 Dow components are positive in 2009: AXP, IBM, INTC, JPM, CSCO, DD, BAC, MSFT, MMM, HPQ, HD, BA, DIS, UTX, AA, TRV, KO, MRK, KFT, CAT, JNJ .

IBM (IBM) had the most negative impact on the Dow, down almost 1.4% for the week .

Month-to-date, Procter & Gamble (PG) is the worst Dow performer by % loss, down over 4% .

Year-to-date, Procter & Gamble (PG) is the worst Dow performer by % loss, down almost 14% YTD .

Intel (INTC) had the most positive impact on the S&P & NASDAQ, up over 7% for the week .

Month-to-date, the top S&P performer by % gain is AIG (AIG) up over 282%

Year-to-date, the top S&P performer by % gain is XL Capital (XL) up almost 365%

MTD, the top NASDAQ 100 performer by % gain is Liberty Media (LINTA), up over 45%

YTD, the top NASDAQ 100 performer by % gain is Seagate (STX), up over 216%

Wells Fargo

(WFC) had the most negative impact on the S&P, down over 2% for the week

Month-to-date, MetroPCS (PCS) is the worst S&P performer by % loss, down almost 31%

Year-to-date, Marshall & Ilsley (MI) is the worst S&P performer by % loss, down almost 48%

Research in Motion (RIMM) had the most negative impact on the NASDAQ 100, down about 4.5% for the week

Month-to-date, the worst NASDAQ 100 performer by % loss is First Solar (FSLR) down almost 20%

Year-to-date, the worst NASDAQ 100 performer by % loss is Pharmaceutical Product Development (PPDI) down over 30%

Sector Impact:   Four out of ten S&P sectors were positive for the week led by Financials, up almost 1.2%. Utilities were the most negative sector, down about 0.73% for the week.

Financials were helped by AIG (AIG), up almost 53% for the week

Utilities were hurt by Dynegy (DYN), down almost 4% for the week

Month-to-date, nine out of ten sectors are positive led by Financials, up over 13%

Year-to-date, nine out of ten sectors are positive led by Tech, up almost 40%

Commodity Impact:  Nymex crude for October delivery settled at $72.74 per barrel on Friday, after trading as high as $75 on Tuesday, or its highest level since October 2008.

Gas Prices: The AAA current national average for regular gas is $2.613 per gallon down 28.61% from a year ago when the average was $3.660 per gallon

The highest recorded average price by AAA was on 7/17/2008, when the national average was $4.114 per gallon

Oil, Gold & Currencies:

Oil rose 25 cents to settle at $72.74 on the New York Mercantile Exchange. Oil hit $75 during the week, a high for the year.

Gold prices rose.

The yen strengthened for a fifth day against the euro after the opposition Democratic Party of Japan swept to power in the nation's general elections yesterday, spurring optimism the new government may stimulate the economy.

Japan's currency gained versus all 16 major counterparts after public broadcaster NHK said the DPJ captured 308 of the 480 lower-house seats, prompting speculation foreign investors will put more money into the world's second-largest economy. The euro headed for its first two-month gain versus the dollar since March 2008 on prospects the 16-nation region's economy is emerging from recession.

"There are expectations that foreigners may flock to Japanese assets, given the DPJ's victory," said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France's third-largest bank. "The yen is likely to appreciate."

The yen climbed to 132.57 per euro as of 10:51 a.m. in Tokyo from 133.85 in New York on Aug. 28, after earlier reaching 132.36, the highest level since Aug. 19. The Japanese currency advanced to 92.73 per dollar from 93.60, after touching 92.57, the strongest level since July 13.

The euro traded at $1.4294 from $1.4303 in New York on Aug. 28. The currency bought 87.99 British pence from 87.89 pence, after advancing to 88.39 pence on Aug. 27, the highest level since June 5.

DPJ President Yukio Hatoyama and his party have pledged to boost child-care spending, cut taxes and curtail the power of bureaucrats after they ended the rule of Prime Minister Taro Aso's Liberal Democratic Party.

'Stashed the Cash'

"What appeals to me on the Japan call is that these are the voters who have stashed the cash under the beds," Tom Murphy, managing partner in Sydney at Family Office Research & Management Ltd., said in a Bloomberg Television interview. "If we get just some increase in investment from the elderly within the population into growth assets of some type, we could see quite a change."

The Nikkei 225 Stock Average declined to 10,497.19 from 10,534.14 on Aug. 28. The yield on the benchmark 10-year Japanese government bond declined to 1.295 percent from 1.31 percent.

The yen also strengthened on speculation Japanese exporters purchased the nation's currency.

"Exporters possibly bought the yen because of month-end demand," said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore.

Japanese companies forecast the yen would average 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan's quarterly Tankan survey released July 1.

German Retail Sales

The euro traded near a 12-week high against the pound before a German report tomorrow that may show retail sales in Europe's largest economy rose for the first time in three months.

Sales, adjusted for inflation and seasonal swings, climbed 0.7 percent in July, after a 1.3 percent drop in June, a Bloomberg survey of economists showed before the Federal Statistics Office's report in Wiesbaden. An index of executive and consumer sentiment in the 16-nation region increased to 80.6, the highest since October, from 76 in July, the European Commission in Brussels said on Aug. 28.

"Recent data have exceeded economists' predictions, suggesting the euro-zone economy is on a gradual recovery path," said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. "The trend is for the euro to strengthen."

It may reach $1.4500 this week, he said.

The European Central Bank will keep its main refinancing rate at 1 percent at its Sept. 3 meeting, according to all 58 analysts surveyed by Bloomberg.

Bonds:

Treasury bonds gained Friday on the lowest consumer sentiment reading in four months and fears of higher unemployment. The yield on the 10-year note sank .02% to 3.44%, making this the third straight week of gains. Shorter-term debt also rose.

What to expect:

The twilight week of summer could provide some new clues about the strength of the stock market's rally after Labor Day.

Ask any trader, and the conventional wisdom you hear will be to expect a quiet week, but watch out after Labor Day when Wall Street gets back to work. Still, there's a heavy calendar of important economic data this week that will show more detail about the strength of the economic recovery.

August's employment report Friday will be the big headline for markets. There are also other key reports, including the ISM manufacturing and non-manufacturing surveys, minutes form the last Fed meeting, monthly auto sales and the Chicago Purchasing Managers report.

"In the next two weeks, things are going to change for stocks and bonds rather dramatically, and one of those has it wrong," said David Ader, head of Treasury strategy at CRT Capital. "It's the data we're going to get in the next couple of weeks—this second set of third quarter data that is going to start showing how things are going one way or the other."

There is little corporate earnings news to propel stocks, and the markets will focus instead on the stream of manufacturing, jobs and other data.

Jobs are one of the most important data points to watch. Although employment is a lagging indicator, the declines need to subside before the economy can recover. Weekly unemployment claims have stalled out recently in terms of showing improvement, signaling some analysts that the recovery could be slower than they expected.

"The claims level suggests losses of over 300,000," in non-farm payrolls, said Crescenzi. Consensus is that 230,000 jobs were lost in August.

ISM is also important this week. It is expected to rise above 50, signaling a growing economy for the first time in months.

In the coming week, Chicago purchasing managers data is reported Monday. ISM manufacturing is Tuesday, as are pending home sales, construction spending, auto sales, and the Fed's minutes. On Wednesday, ADP's employment report, productivity and costs and factory orders are reported. Weekly jobless claims and ISM non-manufacturing are released Thursday, and Friday is all about August's employment report.

Investors will also be watching the G-20 finance ministers as they gather Friday in London, ahead of the G-20 meeting in Pittsburgh later in the month.

Asia:

Nikkei 225 10,497.19     -36.95 ( - 0.35%) (08.01 AM IST).

The Nikkei Stock Average fell into negative territory at one point Monday morning, mainly in reaction to the yen's appreciation to the 92-level against the dollar. 

A historic election win for Japan's opposition Democratic Party on Sunday is likely to buoy Tokyo shares on hopes for less policy deadlock, putting pressure on Japanese government bonds and the yen.

Japan's stock index rose to an 11-month intraday high after the previous night's historic election victory by the opposition Democratic Party of Japan (DPJ), Xinhua news agency reported.

In the first 15 minutes of trading, the benchmark Nikkei-225 index gained 196.78 points, or 1.87%, from Friday to 10,730.92 points, rising to its highest intraday level since Oct. 6.

The broader Topix index of all First Section issues on the Tokyo Stock Exchange was up 15.97 points, or 1.65%, to 985.28 points. The Second Section also advanced.　

Pigeon Corp. (7956) shares rose as much as 230 yen to hit a year-to-date high of 3,980 yen Monday morning, as investors bought in expectation of improved earnings.

The biggest factor behind the rise in Tokyo stocks Monday is the positive preliminary data on industrial production for July, released earlier the same day. 

HSI 19687.87 -410.75 -2.04% (08.15 AM IST).

Hong Kong stocks fell on Monday morning, with the benchmark Hang Seng Index opening 271 points lower at 19,827.

The Hang Seng China Enterprise Index, which tracks the overall performance of 43 mainland Chinese state-owned enterprises on the Hong Kong Stock Exchange, opened 197 points lower at 11,236.

SOHO China Ltd<0410> decreased 0.95% from the previous closing to HK$4.15. Sun Hung Kai Properties<0016> fell 1.82% and opened at HK$108.1.

Chinese shares plunged early Monday on fears of weak bank lending in August and concerns of likely capital-raising issues that may sap market liquidity. The Shanghai Composite Index dove down 4.1% to 2,744.08 in early trading, with deep losses for shares across sectors. Baoshan Iron & Steel Co. /quotes/comstock/28c!e:600019 (CN:600019 6.49, -0.40, -5.80%) lost 5.1% after reporting a 93% fall in first-half profits, while PetroChina Co. /quotes/comstock/22h!e:857 (HK:857 8.64, -0.16, -1.82%) /quotes/comstock/13*!ptr/quotes/nls/ptr (PTR 113.19, -1.61, -1.40%) saw its Shanghai-listed shares drop 4.2% after also reporting a decline in first-half earnings. The slump in Shanghai shares dragged on the Hong Kong market, where the Hang Seng Index fell 1.9% to 19,720.85 in early trading, falling below the psychologically-important 20,000-point level as all of its constitutents dipped into the red. The Hang Seng China Enterprises Index slid 2% to 11,200.52.

SSE Composite  2718.37   -4.97  (08.28 AM IST).

Chinese stocks opened lower on Monday morning, tracking losses from the previous closing last week.

The benchmark Shanghai Composite Index, which covers both A shares and B shares on the Shanghai Stock Exchange, opened at 2,817.63 points, down 1.51% or 43.06 points from the previous closing.

The Shenzhen Component Index on the smaller Shenzhen Stock Exchange opened 1.33% or 152.62 points lower at 11,297.46 points.

Australia's S&P/ASX 200 index [AU;XJO  4477.5    -12.10  (-0.27%)   ] rose to their highest level in more than 10 months, as an upbeat trading update from Australia and New Zealand Banking boosted bank stocks.

ANZ shares jumped as much as 4.3 percent to A$21.35, their highest since June 2008, after the bank said its profit after tax in the first 10 months of the current financial year was tracking slightly above last year.

And Seoul's Kospi [KR;KSPI  1584.0    -23.9399  (-1.49%)   ] opened lower following a weak U.S. consumer report, with Hyundai Mobis tumbling after Hyundai Motor's share purchase, while Samsung Electronics rose on positive brokerage note. 

Canadian Solar to build 500-MW plant in Inner Mongolia.

BOC HK's net profit down 5.6% in H1.

Sinopec Shanghai returns to profit in H1.

JPMorgan cuts stake in Yanzhou Coal Mining to 4.93%.

UBS raises stake in PICC Property & Casualty to 4.97%.

New World Dev't reaps HK$3.8 bln from sales of new luxury homes.

Bank of East Asia considers mainland unit spinoff.

Macao's forex reserves hit US$17.63 bln in Jul.

Sinopec, Mitsubishi launch JV in Beijing.

GM and FAW set up truck JV in China.

China Merchants Bank's net profit down 37.62% in H1.

Weichai Power's net profit hits RMB 1.22 bln in H1.   

China Southern Airlines's first half net profit down 95.3%.  

Japan's July industrial output rise 1.9%

Japanese industrial production in July rose a seasonally adjusted 1.9 percent from the previous month for the fifth straight month of gain, Kyodo News reported.

The index of output at mines and factories stood at 82.4 against the base of 100 for 2005, the Ministry of Economy, Trade and Industry said in a preliminary report.

The headline reading compares with the average market forecast of a 1.6 percent growth in a Kyodo News survey.

The index of industrial shipments gained 2.3 percent to 83.6 while that of industrial inventories was down 0.2 percent to 95.1.

Japan Democrats Take Power, Challenges Loom

Japan's next leader Yukio Hatoyama, fresh from a historic election win, faced the task on Monday of forming a government to tackle challenges such as reviving the economy and steering a new course with close ally Washington.

Sunday's victory by the Democratic Party of Japan (DPJ) ends a half-century of almost unbroken rule by the Liberal Democratic Party (LDP) and breaks a deadlock in parliament, ushering in a government that has promised to focus spending on consumers, cut wasteful budget outlays and reduce the power of bureaucrats.

But the untested Democrats, which will face an upper house election in less than a year, will have to move quickly to keep support among voters worried about a record jobless rate and a rapidly ageing society that is inflating social security costs.

"Everything begins now. Everything depends on how we can modestly create politics which considers the people," Hatoyama, the wealthy grandson of a former prime minister, told a news conference early on Monday.

Official figures have not yet been released, but media forecasts show the Democrats with about 307 seats in the 480-seat lower house, compared with only 119 for the LDP.

Hatoyama was expected to quickly set up a transition team to prepare to take power but said he would not name his cabinet until the new parliament voted him in as prime minister.

Financial markets are expected to welcome the end to a political deadlock that has stymied policies as Japan struggled with its worst recession since World War Two. The Democrats and its small allies won control of the upper house in 2007.

Analysts say the decade-old Democrats' spending plans might give a short-term lift to the economy, just now emerging from recession, but worry that its programs will boost a public debt already equal to about 170 percent of GDP.

The party has vowed not to raise the 5 percent sales tax for four years while it focuses on cutting wasteful spending.

"The problem is how much the Democrats can truly deliver in the first 100 days. If they can come up with a cabinet line-up swiftly, that will ease market concerns over their ability to govern," said Koichi Haji, chief economist at NLI Research Institute. 

The Democratic Party victory ended a three-way partnership between the LDP, big business and bureaucrats that turned Japan into an economic juggernaut after the country's defeat in World War Two. That strategy foundered when Japan's "bubble" economy burst in the late 1980s and growth has stagnated since.

Pressure on Democrats to Deliver

Support for the LDP, which has ruled for all but 10 months since its founding in 1955, has been on a downtrend for years, but charismatic leader Junichiro Koizumi managed to lead the party to a huge election win in 2005 with promises of market-friendly reforms.

Those reforms came under fire even within the LDP for worsening social and income gaps and were further attacked after the global financial crisis tipped Japan into recession.

In an essay published this month in the New York Times, Hatoyama railed at what he called the "unrestrained market fundamentalism" of U.S.-led globalization but at his news conference sought to allay any concerns raised by those comments.

"We are not saying that the (free) market principles are all bad ... But the current economic situation is one where there need to be corrections in areas where reform went too far," Hatoyama said.

A series of scandals, policy flip-flops and a perceived inability to address deep-rooted problems such as creaking pension and health care systems eroded the LDP mandate.

Voters, having taken a gamble on change, will want to see proof quickly that the Democrats can do a better job.

"It's going to be crucial how they spend the first year in office, so in that sense they have to get focused very quickly to get things accomplished," said Sophia University professor Koichi Nakano. "Otherwise, the goodwill may dissipate very quickly and they may face a hostile upper house within a year."

Hatoyama will want to have his cabinet up and running in time to attend a U.N. General Assembly meeting and a G20 leaders summit in Pittsburgh in September.

The Democrats want to forge a diplomatic stance more independent of the United States, raising fears about possible friction in the alliance. They have also vowed to improve ties with Asian neighbours, often frayed by bitter wartime memories.

"(Hatoyama) is basically articulating the idea that the U.S.-led Pax Americana era has come to an end," said Sheila Smith at the Council on Foreign Relations in New York.

"My sense of the DPJ is that they have wanted a little distance between Tokyo and Washington."

Budgetary matters will claim much of the government's attention in its early days. Party leaders have said they might freeze or redirect some of the 14 trillion yen ($149.5 billion) in stimulus spending planned for the year to March 31, 2010.

They may have to craft an extra budget for the current fiscal year to cover an expected tax revenue shortfall, and Japanese media said the party wants to have an outline of the budget for 2010/2011 by sometime in October.

U.S. confident ties to Japan will flourish

The White House said on Sunday it was confident the strong relationship between the United States and Japan would continue under the new government in Tokyo. "We are confident that the strong U.S.-Japan Alliance and the close partnership between our two countries will continue to flourish under the leadership of the next government in Tokyo," White House press secretary Robert Gibbs said in a statement. "President (Barack) Obama looks forward to working closely with the new Japanese prime minister on a broad range of global, regional and bilateral issues," he said. Japanese voters swept the opposition to a historic victory in an election on Sunday, ousting the ruling conservative party and handing the untested Democrats the job of breathing life into a struggling economy. The win by the Democratic Party of Japan ended a half-century of almost unbroken rule by the Liberal Democratic Party and breaks a deadlock in parliament, ushering in a government that has promised to focus spending on consumers, cut wasteful budget outlays and reduce the power of bureaucrats. 

Bond Market Eyeing 10% Jobless Rate Rejects Recovery

The bond market isn't buying all the optimism over the end of the global recession.

While the International Monetary Fund said last week the economic recovery will be faster than it forecast in July, investors pushed yields on government debt to the lowest level since April, according to the Merrill Lynch & Co. Global Sovereign Broad Market Plus Index. The gauge, which tracks $15.4 trillion of bonds worldwide, gained 0.73 percent this month, the most since 1.02 percent in March.

Debt investors can't see a recovery strong enough to spur central bank interest rates anytime soon, especially with the Obama administration forecasting that unemployment in the U.S. - - the world's largest economy -- will rise above 10 percent in the first quarter. After stripping out the effects of the U.S. government's "cash for clunkers" program to buy new cars, consumer spending was unchanged in July, according to Commerce Department data released on Aug. 28.

"The bond market does not believe we will see rapid robust rates of growth," said Jeffrey Caughron, an associate partner in Oklahoma City at The Baker Group Ltd., which advises community banks investing $20 billion. "The deleveraging of the consumer will act as a drag on growth, which will keep inflation to a minimum and interest rates relatively low."

'Bumpy Road'

Bond yields are lower now than when Federal Reserve Chairman Ben S. Bernanke said in an Aug. 21 speech at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming, that "prospects for a return to growth in the near term appear good." European Central Bank President Jean-Claude Trichet said that while the economy is no longer in "freefall," it faces "a very bumpy road ahead."

Two-year Treasury note yields fell 7 basis points, or 0.07 percentage point, last week to 1.02 percent, and are down from this month's high of 1.36 percent on Aug. 7, according to BGCantor Market Data. The 1 percent security maturing on August 2011, sold by the government Aug. 25, ended the week at 99 31/32.

The two-year note yielded 1.01 percent as of 11:06 a.m. today in Tokyo.

The picture is the same in Europe. U.K. two-year gilt yields dropped to a record low of 0.828 percent on Aug. 27 before ending the week at 0.84 percent. German bund yields of similar maturity declined 12 basis points to 1.25 percent last week and fell from 1.61 percent on Aug. 10 even as government reports showed the economy exited the recession in the three months ended June 30.

Making Money

Yields on government bonds of all maturities average 2.27 percent, compared with this year's peak of 2.62 percent on June 8, according to the Merrill Lynch index. The drop helped return fixed-income investors to profit, earning 2.14 percent since the start of June after losing 1.54 percent in the first five months of the year.

Fixed-income strategists at London-based HSBC Holdings Plc said the drop in yields reflects a growing perception that central banks are unlikely to raise borrowing costs as soon as forecast just a month ago.

"Interest rates are likely to remain at record lows for quite a while," said Andre de Silva, the deputy global head of fixed-income strategy at HSBC, Europe's largest bank.

Rate Odds

Traders are pricing in less than a 50 percent chance of a U.S. rate increase before March, federal funds futures show. As recently as June, they saw 70 percent odds of a boost in the Fed's target rate for overnight loans between banks to at least 0.5 percent in November from the current target range of zero to 0.25 percent.

In Europe, traders are paring bets the ECB will raise its main refinancing rate from 1 percent this year. The implied rate on the Euribor futures contract expiring in December was 0.85 percent on Aug. 28, down from 1.22 percent at the start of June.

Bond investors are more pessimistic than stock investors, who have pushed the MSCI's World Stock Index to the highest level since October.

The index rallied 4.7 percent this month after the Washington-based IMF, which rescued countries from Iceland to Pakistan during the global crisis, said in July the world economy will expand 2.5 percent in 2010 following a 1.4 percent contraction this year. Since then, Japan, France and Germany returned to growth.

Recovery in Sight

"We do believe the recovery is in sight and is going to be perhaps a little better than we had at one time thought, but we expect a rather muted recovery," Caroline Atkinson, the IMF's external relations director, said to reporters in Washington on Aug. 27.

Reports last week in the U.S. and Europe showed home sales, durable goods orders and business sentiment rose more than forecast. The median estimate of 55 economists surveyed by Bloomberg is for growth in the U.S. of 2.3 percent next year.

"It's too pessimistic a view to look at all these factors and still think we won't have a reasonable recovery," said Michiel de Bruin, who helps manage $27 billion as head of European government debt in Amsterdam at F&C Asset Management Plc's Dutch unit. "Our view is that if unemployment rises at a slower pace than expected, that's already good news. Against this backdrop, government bonds will find it very hard to sustain a rally going forward."

Two-year Treasury yields are forecast to end the year at 1.32 percent, while 10-year yields may rise to 3.87 percent from 3.45 percent last week, according to the median estimate of more than 45 economists and strategists surveyed by Bloomberg.

An increase to those levels would still leave 10-year yields below their average of 5.63 percent during the past 20 years.

Relatively Low

Treasuries gained last week even as reports showed the housing market may have bottomed. Although the National Association of Realtors in Washington said Aug. 21 that sales of existing U.S. home jumped 7.2 percent in July to the highest level in two years, prices fell 15 percent from a year earlier.

"Evidence has been accumulating that housing has begun to put in a bottom," said Jay Mueller, a senior money manager who oversees about $3 billion of bonds at Wells Fargo Capital Management in Milwaukee. "Still, the news isn't that earth shaking. Going forward we are going to need to see a lot more fundamental justification on the economy getter better, and not just less bad information, if the move to riskier assets is to be sustainable."

Mutual Funds

Mutual funds, pensions and endowments sold $1.79 billion more shares of companies that rely on consumer spending this month than they've bought, the fastest pace in at least 14 years, based on data compiled by Boston-based State Street Corp., the custodian of $16.4 billion of assets.

The world's biggest financial institutions, which have taken $1.6 trillion in writedowns and losses since the start of 2007, are scooping up bonds at an accelerating pace.

Bank holdings of government securities and debt of mortgage companies Fannie Mae in Washington and McLean, Virginia-based Freddie Mac increased to a record $1.37 trillion in the week ended Aug. 12, from $1.31 trillion on July 29, Fed data show. The 4.8 percent jump was the biggest for any two-week period since the start of the year.

The surge comes as the U.S. savings rate reached 6.9 percent in May, the highest level since 1993. It was as low as zero as recently as April 2008.

The bond market is signaling that the measures by policy makers may not be enough because unemployment is forecast to climb, capping consumer demand, which accounts for about 70 percent of U.S. economic activity.

'Not Convinced'

"It's not at all clear that the economy is out of the woods yet," said Mihir Worah, who invests the $14 billion Real Return Fund for Newport Beach, California Pacific Investment Management Co. "We still have to see convincing signs that the consumer can survive once the government stimulus is taken away, and we are not convinced of that."

The last time the U.S. unemployment rate was above 10 percent was in 1983, following the recession of 1981 and 1982. Cuts in the Fed's target rate from 20 percent at the start of that contraction to 8.5 percent, combined with deficit spending by the Reagan administration helped push the jobless rate down to 7 percent by the end of 1985.

At the start of this recession in December 2007, the Fed's target rate for overnight loans between banks was 5.25 percent, driving policy makers to alternative measures such as purchases of bonds after it cut borrowing costs to almost zero in December.

Wage Drop

Wages and salaries fell 4.7 percent in the 12 months through June, the biggest drop since records began in 1960, Commerce Department figures show. Purchases will probably climb at an average 1.6 percent quarterly rate through June 2010, compared with 2.8 percent during the six-year expansion that ended in December 2007, according to a Bloomberg survey of economists this month.

Threadneedle Asset Management Ltd. in London, was bearish on Treasuries until May.

"There's much optimism about the state of the economy in general," said Dave Chappell, a money manager at the company, which oversees $90 billion. "But when the stimulus programs, such as a credit tax break for first-time home buyers, run off, can the momentum continue? It probably can't. Treasuries, particularly long-dated ones, are unlikely to buckle with this improving view on the economy."
 

INVESTMENT VIEW

Gujarat Gas: A Plunge In Nautral Gas Price May Turn Into A Boon
 
 
Owned to the extent of 60 per cent by British Gas, this City Gas Distributor has been primarily dependent upon the PMT onshore gas fields in Gujarat for natural gas supplies.
 

But recent sanction of 0.5 mmscmd of gas from Reliance, and the continuing fall in NG prices across the World may allow the company to reap long term benefits by entering into these ultra low gas supply contracts with BG, Shell and Ras Gas which had earlier on being supplying spot cargoes ex-Hazira at delivered cost of $ 6 per MBTU's.

 

Lower input costs will mean higher users both industrial and retail coming forth to opt for Natural Gas as a primary fuel for rapid industrialisation in sectors as far apart as Retail, Power, Transportation and Fertilisers.

 

Natural gas prices fell to their lowest level in seven years Thursday after the government reported that increasing amounts of it are being placed into storage.

 

Natural gas, a key energy source for power plants around the country, has been building in storage caverns for most of the year as companies close offices and manufacturers switch off factories.

 

Natural gas tumbled more than 6 percent, or 18.5 cents to $2.725 per 1,000 cubic feet. The price dropped as low as $2.698 per 1,000 cubic feet earlier in the day, a price not seen since Aug. 7, 2002.

 

Crude, gasoline and heating oil futures fell as well, as hopes for an economic recovery dimmed on a rising number of bank failures and signs that China's economy was choking on a surplus of building materials.

 

Benchmark crude for October delivery gave up $1.07 to $70.36 a barrel on the New York Mercantile Exchange. Oil prices have been tumbling since they touched $75 a barrel on Tuesday.

 

"It's getting harder and harder to justify it at these prices," PFGBest analyst Phil Flynn said.

China, which is expected to lead major economies out of recession, said Wednesday that it will cut back on its investment in key manufacturing industries to cool off industries like building materials, steel and cement.

 

Meanwhile, the Federal Deposit Insurance Corp. reported growing levels of soured bank loans. The FDIC said U.S. banks lost $3.7 billion in second quarter, compared with profits of $4.7 billion last year.

 

Credit markets are still gummed up as banks big and small continue to struggle. As a result, consumers and businesses are spending less, and that includes spending energy.

Gasoline demand is falling, according to a government report released Wednesday.

 

Natural gas prices plunged early in the day when the Energy Information Administration reported that natural gas stocks added 54 billion cubic feet last week. The total supply now sits at 3.26 trillion cubic feet, more than 18 percent higher than the five-year average.

 

The amount in storage was starting to test the country's maximum capacity for natural gas. But EIA economist Jose Villar told The Associated Press that storage facilities have added about 100 billion cubic feet of extra space, giving suppliers more places to put it. The EIA will include details of the added capacity in a report to be published in the next few weeks, Villar said.

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)
 

Index Outlook — Sensex at the crossroads

Sensex (15,922.4)

The Sensex continued running on the treadmill for the third consecutive month, huffing and puffing but not getting anywhere. August was particularly exasperating with the index moving tantalisingly close to the 16,000 mark on many days without making a serious effort to move above it.

Bulls can, however, derive satisfaction from the fact the week ended on a triumphant note with the Sensex once again crouched and ready to spring over the 16,000 threshold.

Comatose front-line stocks made traders shift their attention to mid and small-cap stocks. BSE Smallcap Index gained 8 per cent last week accompanied by some astonishing moves in lesser known stocks. However, BSE mid and small-cap indices have retraced less than half of the losses made in the previous decline while the Sensex is close to 61.8 per cent retracement which gives them more head-room.

FIIs turned net buyers once again last week. Expiry of the August series passed smoothly indicating the absence of nervous shorts in the market.

The Sensex has gained just 1.6 per cent in August so far. Monthly rate of change oscillator has reached levels last seen in April 2006 indicating that prices are getting overbought even from a long-term perspective. But these oscillators can remain in overbought zone for many months before a correction materialises. Weekly oscillators that were poised on the verge of entering the negative zone have recorded a small upward reversal.

The intermediate term up-move from the March lows continues to be in robust health. Simple trend following techniques give a positive outlook and extrapolating the move from 8,047 gives the minimum target of 17,886 for Sensex. However, we continue to advise caution because the zone between 16,000 and 17,000 is a potent minefield that can give investors a nasty surprise.

The up-move from 13,219 could be the fifth and final wave of the move from March lows in which case it can terminate at 16,104 or at 17,373. The other count that needs to be kept in purview is that of a terminal corrective that makes the index vacillate in a range between 13,000 and 16,000 before the entire up-move from March low ends. It also needs to be borne in mind that the Sensex is drawing close to the 16,180 mark that is the 61.8 per cent retracement of the down-move from 21,206 peak.

We remain ambivalent regarding the short-term movement in the Sensex. We had outlined three short-term trajectories for the index in our last column. The quandary has not been resolved yet. Sensex has moved close to 16,000.

A reversal from here can cause a decline to 14,700 or 14,244. But a break-out above 16,000 can cause the index to move on to 16,180, 16,312 and 16,459. Supports for the week are 15,500 and 15,200. Short-term investors can buy in declines as long as the first support holds.

Nifty (4,732.3)

Investors celebrated as the Nifty recorded a weekly close above the 4,700 mark. But as we have been reiterating, the index is in a range between 4,400 and 4,700 in the short-term. A reversal from these levels can cause a decline to 4,400 again. However, the short-term trend will turn negative only on a close below 4,230.

Interestingly, 61.8 per cent retracement of the down-move from 6,357 in the Nifty is at 4,898 that is a little farther than 16,000 at this point. That would be the medium-term target on a break-out. Short-term pattern is however positive and indicates a surge higher to 4,838 or 4,954.

Short-term supports are at 4,600 and 4,500. Traders can buy at declines as long as the index holds above the first support.

Global Cues

Global benchmark indices paused at higher levels last week while few recorded marginal gains. CBOE Volatility Index held steady between 22.5 and 26 indicating that investor sentiment continues to be cheerful and optimistic.

European indices led by the FTSE put up a strong show. DJ Euro STOXX has just neared its key medium-term resistance level at 2845. Rally beyond can result in another 10 per cent gain in this index.

Asian indices did not make any headway though some closed with marginal gains. What is worrisome is the renewed weakness in Shanghai Composite that failed to get past the resistance at 3,000 indicated last week. However a close below 2,800 should be seen before panic buttons are pressed.

The Dow managed to hold resolutely above 9,400 though the movement was extremely narrow. It closed the week with meagre 38 points gain. Momentum is sagging and a pull-back appears to be in the offing in near future. But if the index moves higher, next target would be 10,300.

Similar movement was witnessed in the S&P 500 too that moved sideways above the resistance at 1020 and closed with a doji in the weekly chart denoting indecision.

CRB Index that tracks commodity prices is moving in a band between 400 and 430 since the beginning of August. There can be one more spurt in this index to the next resistance level of 445.

Nifty futures likely to sustain the momentum

The Nifty futures sustained the momentum and closed above the 4,700-mark.The September futures closed at 4,737.8, gaining 4.4 per cent. . However, the premium narrowed down to just five points with respect to the Nifty spot, which closed at 4732.35 level.

The Nifty September futures saw sharp rollover of 76 per cent, which is the highest since February 2009. The overall market-wide rollover at 84 per cent is also higher than the three month average rollovers. With most of the individual stock futures trading in premium, the rollover seem to be on the long side.

Healthy rollovers were seen in the cement, fertilisers, sugar and textile sectors.

Among the stock futures, the action was mainly centred on the momentum players such as Unitech, IFCI, JP Associates, Aban Offshore and Suzlon.

Follow-up

We had advised traders to go long on the Nifty futures with a stop-loss at 4,365. This strategy ended with sharp gains, as the Nifty futures hit our first target.

Outlook

With the Nifty futures clearly and convincingly moving past the 4,630 resistance, it appears that the next major resistance is at 5,200 level, though in between 4,920-4,935 could act as another stumbling block.

On the other hand, Nifty futures can find support at 4,535-4,575 levels. A dip below this level could take the Nifty futures to 4,050 level while in between 4,200-4,210 could act as another minor support zone. With strong rollovers and aggressive put writing, it appears that the Nifty futures is all set to continue the bullish momentum.

Option monitor

Trading in option presents a mixed view. Among the options, 4,900 calls saw higher accumulation, indicating the emergence of call writers. This means, Nifty could find strong resistance around 4,900 level. However , put writers emerged at 4,500 and 4300 level. This points that these levels could act as a major support base for Nifty.

Even at the start of the new series itself, quite a few October month options were active; the 4,700-strikes of both put and call side and 5,000 calls were in the active zone. This also indicates the possible range for Nifty movement.

Volatility Index

The volatility index, which climbed above 80 intra-day, slipped sharply to end at 33.27 against the previous week close of 38.51 points. The drop in volatility index indicates the confidence of market players in the current rally.

Recommendation

We recommend the following strategies

1) Consider going long on Nifty futures with a stop-loss at 4,635The stop-loss can be adjusted suitably going forward, so as to protect the profits, should the Nifty open on strong note on Monday.

2) The other strategy is bull call spread. This can be initiated by buying Nifty 4,700 call and selling 5,000 call. They closed at 180 and 60 respectively. The maximum profit in this strategy is the difference between strike prices and net debit paid which is Rs 180 considering the closing prices of calls on Friday; the maximum loss could be net debit paid (i.e. Rs 120).

FII trend

The cumulative FII positions as percentage of the total gross market position on the derivative segment as on August 27 increased to 37.84 per cent (32.85 per cent).

They were mainly buyers all through the week. Their index futures holding decreased to Rs 10,988.19 crore (12,251.43 crore) and stock futures to Rs 19,426.09 crore (Rs 20,712.29 crore); their index options holding slipped to Rs 21,323.99 crore (Rs 24,510.88 crore).

Pivotals — Reliance (Rs 2,070.3)

Reliance Industries kept the market afloat with its seven per cent surge last week. But the stock has not yet moved beyond the trading range between Rs 1,900 and Rs 2,100 that is confining it over the last six weeks. Short-term trend in the stock is up and it can make an attempt to move higher to Rs 2,200 in this period. Close below Rs 1,860 is required to turn the short-term view negative.

We, however, stay circumspect about the medium-term prospects of the stock unless there is a close beyond Rs 2,200. Medium-term supports are at Rs 1,900 and then Rs 1,700.

State Bank of India (Rs 1,781.5)

SBI continued to meander sideways and closed the week on a flat note. The doji in the weekly candlestick chart amply demonstrates its indecisive state. Oscillators in the weekly chart are declining from the bullish zone and are poised on the brink of entering into negative territory. We stay ambivalent regarding the near-term prospect of SBI and expect a range-bound move between Rs 1,650 and Rs 1,900 in this period.

The medium-term view for the stock is positive and the range-bound move between Rs 1,500 and Rs 1,900 appears to be a halt before it makes a dash towards its previous high. Close below Rs 1,500 is needed to negate this view.

Tata Steel (Rs 438.6)

Tata Steel declined to an intra-week low of Rs 415 on Friday but rebounded strongly from there to end above the short-term support at Rs 430. The short-term trend in the stock is positive and we maintain the targets of Rs 557 and Rs 600, on a break above Rs 500. Short-term investors can hold the stock as long as it holds above Rs 415. Subsequent supports are Rs 394 and Rs 375.

The medium-term trend in Tata Steel is positive since March. Close below Rs 375 is needed to mitigate the positive medium-term outlook for this stock.

Infosys (Rs 2,187.6)

Infosys too shone last week as the stock broke-out beyond the resistance at Rs 2,100 to head towards an intra-week peak of Rs 2,202. The eight per cent rally last week has taken daily oscillators to the overbought region. The stock could witness a mild decline that pulls it lower to Rs 2,100 or Rs 2,040. Short-term investors can hold the stock as long as it holds above the first support. If the rally continues without a pause, next target is its previous peak of Rs 2,248.

The medium-term view remains positive and a close below Rs 1,950 is needed to mitigate this view. Turbulence can however be expected as the stock nears its previous high and target beyond Rs 2,343.

ONGC (Rs 1,179.2)

ONGC moved in an extremely narrow range between Rs 1,160 and Rs 1,220 last week. As we have indicated earlier, the stock is currently consolidating in the range between Rs 970 and Rs 1,200. Short-term chart patterns are positive and a break-out above the upper end of the range can take the stock higher to the previous peak of Rs 1,356. Short-term investors should therefore hold the stock with a stop at Rs 1,140. Subsequent supports are at Rs 1,100 and Rs 1,070.

Maruti Suzuki (Rs 1,421.9)

MSIL is pausing mid-way between its current trading range. A sideways move between Rs 1,200 and Rs 1,500 is likely before the stock attempts to break-out higher. Investors can hold the stock with a stop at Rs 1,180. Subsequent supports are at Rs 1,100 and Rs 980. —
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Arvind Parekh
+ 91 98432 32381