Many of analysts are expecting Fed to cut bond purchase by $10 billion in second month consecutively. But are the fundamentals in support of tapering and does economy has shown expected results in this month?
In December Fed started tapering of long lasted easing program when economic indicators had shown more than expected results. During last month manufacturing industry had shown expansion, retail sales and core retail sales improved, home sales data were also good, core durable and durable goods orders had advanced, consumer sentiments were high. Mainly Non Farm Employment increased above previous result and beat economistsâ€™ expectations and unemployment rate fell to 7.0% from 7.3%.
Now if we look at this monthâ€™s results then Non Farm Payroll fell to 74k lowest since Jun 12, unemployment rate fell to 6.7% from 7%, Core retail sales was negative, manufacturing and non manufacturing indices fell a little, consumer confidence declined, core durable and durable goods orders fell sharply and home sales remained low compare to last month. Â Negative results have overweighed positive changes in economy.DXY index has remained volatile compare to the basket of 6 major currencies during this month.
Overall if Fed decides to roll back in this kind of economic scenario then we may see investment outflow from U.S. equity market. Investors would prefer to put their money in better markets where there are less chances of high volatility. It might be possible that investment turn towards commodity market that rise precious metal prices to new highs.
Right now bullion investors are exiting their position on fear of Fed stimulus cut but they better check fundamental possibility of tapering and its impact on U.S. economy.
We are expecting that this month Fed may not rollback asset purchase program and wait for better economic performance in next month. It may support precious metals and weaken dollar for short time. Investment towards emerging market may increase with strong currency levels.
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Yesterday WTI fell at eight months low of $91.24 on increasing production at global market. After EIA data release for weekly oil production the commodity dropped steeply and lost near to 1.8% on Wednesday.
According to Reuters production at Saudi Arabia has increased by 9.81 million barrels per day in December, up from 9.745 million barrels. At Libya oil production has gained on increased capacity of existing refineries and few others are also expected to resume near to Jan 12. On Thursday the dollar index advanced to its highest since 21st November and breached the level of 81.0 that lower the oil prices. If today payroll data and unemployment rate improves then it may further pressurize oil prices.
China trade balance narrowed to 25.6b from earlier 33.8b. According to the General Administration of Custom export rose by 4.3 percent from a year earlier and Imports increased by 8.3 percent. WTI gained after the import amount of crude oil surged to 6.3 million barrels a day. China is the worldâ€™s second largest oil importer after U.S.
Low prices may prompt investors to take long position as the commodity seems undervalued at present. WTI gained by 0.86% at $92.45 at euro markets. In other energy commodities Brent gained 0.33% at $106.74, Natural Gas up by 0.60% at $4.027.
Copper prices fell at domestic market as China Flash Manufacturing PMI fell to eight months low at 48.1 from 48.5.
Copper prices at MCX fell to Rs. 396 after opening lower by Rs. 1.10 at Rs. 399.20. Copper prices again followed Chinese data. Earlier in this month the metal fell heavily as a Chinese real asset company default that rose concern on credit risk. Waning growth at world's second largest economy has triggered bearish sentiment among investors.
Today in early morning Markit released flash manufacturing PMI of China that has shown contraction for third consecutive month. Falling output and new orders could have badly affected manufacturing industry. Domestic demand has also slowed down at the economy.
Growth at China is expected to fall for this quarter as fixed asset investment has been falling, exports are declining and industrial production is at five years low. The government may invest in new enterprises to speed up the growth engines.
Chinese stocks gained after the below expected result as investors are expecting that the Government may provide stimulus to prevent slowdown of the economy.
Copper prices may get support if upcoming U.S. economic results show improvement in the world's largest economy.
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