Daily Market Commentary: Thursday, August 10, 2012

The Indian Rupee opened weaker at 55.34 levels after closing yesterday at 55.27 against the dollar. The Asian share declined on Friday as investors await the action, by the European leaders to ease concerns over the Euro zone's debt crisis and weak growth. The intra day range for the rupee is expected between 55.20-55.60 levels.

The IIP Data released showed India's factory output contracted 1.8 percent in June, adding to pressure on new Finance Minister to move quickly with fiscal reforms. The WPI data is due for the day

The dismal data for June 2012-13 includes a huge downslide of 28% in capital goods sector indicating a clear signal about lack of fresh investment in the economy. The manufacturing segment having the weight of 75% in the Index of Industrial Production (IIP) dropped by 3.2% in June, which will pressurize the central bank to reduce interest rates.

The annual growth in China's factory output slowed to its weakest in more than three years in July, and increasing expectations that Beijing will take further policy steps to support an economy that has seen growth sliding for six straight quarters.

The Moody's Analytics cut India's growth forecast to 5.55 for this year, citing a lack of government or RBI action despite a broad-based slowdown, as well as a poor monsoon.

The euro was pressured on Thursday by the European Central Bank's monthly bulletin which said there were downside risks to the euro zone's economic outlook, with financial market tensions and their potential impact on the real economy posing the main concerns.

The investors are on the hopes that the ECB will start buying sovereign bonds to lower borrowing costs for Spain, and that the Federal Reserve will expand its monetary easing.

The demand for safe-haven U.S Treasuries eased after data positive data released on Thursday. The U.S 10 year treasury yield is currently trading at 1.66%.

The Indian bonds yield ended steady on Thursday, stalling after three days of gains as traders grew cautious ahead of inflation data The benchmark 10-year bond yield closed at 8.14% flat from its previous close, after falling as much as 8.10% during the session. The average liquidity deficit with banks has come down to around 500 billion rupees from close to 1 trillion rupees at the end of June.

(Source: Corporate Communications Team, India Forex Advisors Pvt. Ltd.)