GENERAL MARKET CONDITIONS

The G7 meeting has failed to stop the US dollar’s slide despite concerns over the same. Traders are looking at the growth differential between US and other countries before investing. Unless this differential reduces or chances that this differential will reduce in the future the US dollar will continue to find sellers at higher levels. However in the second quarter the pace of the US dollar’s decline will be slower than the first quarter. The same will be with precious metals.

OPEC has quietly begun to reduce its oil production despite calls from the US and Europe for the group to pump more so that prices fall. Output from the core countries of the 13-member cartel last month fell to 27.3m barrels a day, down from the 27.6m b/d they produced in February and 27.8m b/d in January. The International Energy Agency, the western countries’ watchdog, said on Friday in its monthly report. The cuts come despite assurances from Opec ministers that they were keeping their output steady. There are two aspects to crude oil prices: (A) The rise in crude oil prices is more due to investment interest instead of demand and supply factors (B) Opec does not want crude oil prices to fall and it’s base price is getting higher. It is supplying the market with some form of bullish news which is preventing investors from going short or exiting their longs. Another point which I have observed over the past one year is that cyclical demand factors in Asia is the key mover of crude oil prices instead US demand. Crude oil prices can rise to $125 and still fall back to $85 and below.

It will be a technical trade today in all metals and energies. We prefer a buy on dips strategy as long as key technical supports are holding. Selling is preferable only when metals are unable to break medium term technical resistances

GOLD -- JUNE FUTURE.

Gold is trading in a wider $912-$950 range. A breakout from this range is in the offing soon.

INDIAN RUPEE (USD/INR)

2007-2008 direct tax collections are expected to rise to Rs.3, 10,000 crore. The government had revised the direct tax collections target from Rs.267, 490 crore to Rs. 305,000 crore. Customs mop up is all set to exceed the higher revised estimate of Rs.100, 766 crore. Service tax collections to hit revised target of Rs.50,603 crore. Higher tax collections will help the government to meet the sops given to farmers ahead of the general elections before May, 2009 without affecting the fiscal deficit. 2007-2008 was an exceptional year for the Indian economy as the stocks markets were at a higher peak. In 2008-2009 Indian stock markets will not rise much as the previous year. Higher food and energy prices along with lower returns from stock markets should result in lower tax collections. The Rupee will be volatile in the coming weeks. The government will like the rupee to appreciate against the US dollar to control inflation. It is considering stopping even basmati rice exports despite the fact that a negligible portion of the Indian population has basmati rice. Intra day rupee should trade in 39.80-40.08 wider range.


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