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from Expert Zone:

India Markets Weekahead: ‎Tough for the Nifty to break out of its range

(Any opinions expressed here are those of the author and not of Thomson Reuters)

The Nifty continued its upward trajectory to close at a two-week high of 7,792 in a holiday-truncated week. However, this optimism was not reflected in the broader market, especially the mid caps and small caps.

Among the sectors, public sector banks, realty, infrastructure and capital goods, which led the rally earlier, have underperformed in the last few weeks whereas defensives such as FMCG, pharma and IT stood out, an irony when markets are close to a record high.

Macro data released during the week wasn't encouraging with consumer inflation, especially food inflation, continued to soar whereas IIP data indicated a renewed slowdown. Exports data released on Thursday indicated that they grew faster than imports, though the deficit touched a high of $12.2 billion.

The Nifty has been in a broad range of 7,500-7,850 since the last two months despite FII. flows of about $2.3 billion during the period. This can be attributed to a lack of substantial triggers to push the markets into a new zone. The hopes and expectations of investors with the new government were reaffirmed with the statement of intent but it seems the markets would await the execution of that intent to break out of the range.

from Global Markets Forum Dashboard:

A very German problem for the ECB

The clock is ticking down to the European Central Bank’s policy meeting tomorrow and markets are waiting to see what the bank’s president, Mario Draghi, will say about the state of the regional economy, especially since euro zone inflation fell in July to its lowest level since the height of the financial crisis five years ago.

Earlier today, Lorcan Roche Kelly, one of the most prolific financial-market tweeters who has nearly 14,000 followers, joined us in the forum to give us an idea of what to expect from the ECB and said at most, Draghi will reiterate the central bank’s latest acronyms - TLTRO (Target Long Term Refinancing Operation) and Annual Quarterly Review (AQR) - but is unlikely to spring any new ones on the markets.

from Counterparties:

MORNING BID – The economic state of things

The jobs report takes a bit of heat off of Thursday’s selloff, which was predicated in part on some nonsense out of Europe and more importantly some kind of growing consensus that the economy is getting hot enough that it might force the Federal Reserve to start raising rates a bit earlier than expected, given a sharp and unexpected rise in the employment cost index on Thursday. And while it’s fair to suggest the stock market has gotten a bit ahead of itself when the Fed is rapidly moving toward the end of its stimulus policies, it’s also possible that stocks have gotten ahead of themselves for a far more prosaic reason – the economy isn’t strong enough to support the kind of valuations we’re seeing in equities right now.

That’s not to say we’ve got bubbles all over the place in stocks – they’re pretty few and far between – but credit standards in various places have loosened, and if the Fed starts raising rates we’re going to see a pretty quick reversal of that before long. There are significant signs of concern emerging in places like the high yield market, which has dropped off sharply in recent days, particularly among the weakest credits, and the housing and auto markets, which are better leading indicators than the jobs data, also suggest that the slack credit standards may end up hitting a wall before long.

from MacroScope:

Another month, another downside surprise on euro zone inflation

sale signsNobody except a born pessimist ever expects a bad situation to get incrementally worse.

But the relentless downward trajectory of inflation in the euro zone has got plenty of economists sounding unconvinced that the situation will turn around any time soon.

from MacroScope:

Euro zone inflation to fall further?

draghi.jpg

Euro zone inflation is the big figure of the day. The consensus forecast is it for hold at a paltry 0.5 percent. Germany’s rate came in as predicted at 0.8 percent on Wednesday but Spain’s was well short at -0.3 percent. So there is clearly a risk that inflation for the currency bloc as a whole falls even further.

The Bundesbank has taken the unusual step of saying wage deals in Germany are too low and more hefty rises should be forthcoming, a sign of its concern about deflation. But the bar to printing money remains high and the European Central Bank certainly won’t act when it meets next week. It is still waiting to see what impact its June interest rate cuts and offer of more long-term cheap money to banks might have.

from MacroScope:

EU cuts off Russian banks, puts ball in Moscow’s court

Russia's President Vladimir Putin talks to reporters during a meeting in Brasilia

True to its word, the EU agreed sweeping sanctions on Russia yesterday, targeting trade in equipment for the defence and oil sectors and, most crucially, barring Russia’s state-run banks from accessing European capital markets. The measures will be imposed this week and will last for a year initially with three monthly reviews allowing them to be toughened if necessary.

There was no rowing back from the blueprint produced last week – having already agreed to exempt the gas sector – and the United States quickly followed suit, targeting Russian banks VTB, Bank of Moscow, and Russian Agriculture Bank, as well as United Shipbuilding Corp.

from Data Dive:

Inflation inches up

The latest inflation numbers are out. According to the Bureau of Labor Statistics, the consumer price index rose 0.3 percent in June, following a 0.4 percent rise in May, mostly thanks to high gasoline prices. However, core CPI -- which ignores volatile food and gas prices -- was only 0.1 percent. CPI year-over-year, which is the number commonly referred to when talking about inflation, now sits at 2.1 percent (1.9 percent without food and gas).

cpi-june14

This has implications for monetary policy, as the Fed ponders when exactly to time its first interest rate hike (currently expected sometime early next year). Here’s more detail from Reuters:

from Counterparties:

MORNING BID – What’s all the Yellen about?

Rants from TV commentators aside, the market’s going to be keenly focused on Janet Yellen’s congressional testimony today, with a specific eye toward whether the Fed chair moderates her concerns about joblessness, under-employment and the overall dynamism of the labor force that has been left somewhat wanting in this recovery. The June jobs report, where payrolls grew by 288,000, was welcome news even as the economy continues to suffer due to low labor-force participation and weak wage growth.

Inflation figures are starting to show some sense of firming in various areas, for sure, but still not at a point that argues for a sharp move in Fed rates just yet. Overall, a look at Eurodollar futures still suggests the market sees a gradual, very slow uptick in overall rates – the current difference between the June 2015 futures and June 2016 futures are less than a full percentage point – not as low as it was in May of this year, but still lower than peaks seen in March and April 2014 and in the third quarter of 2013, before a run of weak economic figures and comments from Fed officials themselves scared people again into thinking that the markets would never end up seeing another rate hike, like, ever again.

from MacroScope:

New EU takes shape

juncker.jpg

The new EU aristocracy will be put in place this week with the European Parliament to confirm Jean-Claude Juncker as the next European Commission President today and then EU leaders gathering for a summit on Wednesday at which they will work out who gets the other top jobs in Brussels.

Although Juncker, who will make a statement to the parliament today which may shed some light on his policy priorities, is supposed to decide the 27 commissioner posts – one for each country – in reality this will be an almighty horse-trading operation.

from Expert Zone:

Budget 2014/15 reveals priorities, sets the stage

(Any opinions expressed here are those of the author and not of Thomson Reuters)

The new Narendra Modi government rides on a long wishlist of policies and reforms, with limited resources. Budget 2014/15, as expected, reveals the government’s priorities in the near and medium term.

Arun Jaitley poses as he leaves his office to present the union budget for the 2014/15 fiscal year in New DelhiThe inflation moderation imperative overshadows near-term headline growth desires, manifested in aggressive (albeit challenging) fiscal deficit targets. The projected fiscal deficit of 4.1 percent (3.6 percent of GDP in FY16) versus the 4.6 percent recorded in FY14, is in line with expectations. The reduction in the budget deficit is driven by hoped-for revenue growth rather than depressed spending growth.

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