US payroll report controls the markets

Growing indications that the Fed could lift US interest rates was the most talked about affair of the week.

All eyes were on the much-awaited US nonfarm payrolls report for August as it may play a crucial role in Fed's decision to hike interest rates. The report stated that nonfarm payroll increased 1,73,000 in August. This was marked as a slowdown from July's upwardly revised gain of 2,45,000 and was the smallest rise in employment in five months. Most of the decline came from the manufacturing sector, which lost the most jobs since July 2013. However, the US jobless rate dropped to 5.1%, the lowest since April 2008, and we saw acceleration in wages. With this, the dollar trimmed losses against a basket of currencies and the prices for US treasury debt pared gains.

The US data kept the prospects of a Federal Reserve rate hike alive. The US Federal Reserve will meet September 16-17 to decide whether it raise rates now or at a later date.

The data increased investor anxiety across the globe on Friday. In Asia, the Nikkei 225 was down by 2.15% while Hong Kong's Hang Seng was off by 0.43%. Ongoing concerns about China burdened the Shanghai Composite, which ended lower by 0.2%. Europe's market fell 2% after rising almost 2.5% on Thursday.

More questions for Indian markets...

The Indian indices ended their trading session deep in the red. The domestic equity benchmark Sensex plunged 2.18%. This was a 52-week low level. The NSE-Nifty settled the week 2.15% lower, recording its lowest closing level since November 2011. The S&P BSE Midcap and S&P BSE Smallcap too got butchered, closing lower by 2% and 2.5% respectively. Sectoral indices also ended the week on a discouraging note, with most of the losses coming from reality and banking stocks.

Indian Markets End At Their 52 Week Low
Source: Spider Software India

The previous week's pullback was short-lived as the Nifty continued its southward journey this week. The index cracked more than 4% and closed at a low of 7,655. Although it may appear that there's no one to hold back the bears, there are some key levels to watch out for the next week. The first is the election-day top of 7,563, which the index reached when the Modi-led BJP government was declared a clear winner in Loksabha elections. The second is the 38.2% retracement of the upmove from August 2013 to March 2015, which landed the market at 7,591. The index is currently very close to these levels. Expect some resilience by bulls around these levels.

Let's have a look at the factors leading to the recent downtrend.

Foreign institutional investors (FIIs) sold shares worth a net Rs 161.5 billion in August, the highest monthly sell-off since January 2008. However, domestic buyers provided some respite, buying a net Rs 8.4 billion.

The Bank Nifty entered bear market territory after banking stocks came under selling pressure during the week. On Friday, the BSE Bankex traded deep in the red before ending 2.65% lower.

The government announced the GDP numbers for the first quarter of the financial year started April. This came out below par at 7%.

All in all, more questions were raised than answered this as many investors now fear a slowdown amid global economic uncertainty.

COMMODITIES

Gold

MCX Gold October opened the session at 26,673. The yellow metal struggled to recover from last week's losses on concerns that the US will raise rates later this month. However, the positions started turning during mid-week, and the MCX contract surged on Wednesday. This was seen as equities around the world witnessed a negative trend. And further worries about the slowdown in China pushed the contract higher. Coming to the end of the week, a strong dollar and the US jobs report pulled the precious metal lower. The contract traded at a high of 27,017 before finally closing the session at 26,532.

Gold Witness Volatility
Source: MCX, Equitymaster

Silver

Silver traded in tandem with gold for the week. The contract for September opened the session at 34,334. Prices fell on Monday on the back of weak trends overseas. Further sell-off was witnessed as participants off-loaded their positions on expectations of a US rate hike. These losses were restricted by an uptrend during mid-week on the back of a global market rally. However, silver failed to regain its momentum as prices started falling during the end of the week. It traded at a week low of 34,235 and settled at 34,715 on Friday.

Crude Oil

Prices for crude oil fell on Monday as speculators trimmed their positions amid weak trends in Asian trade. The losses were further stretched as signals regarding the US rate hike weighed on investor sentiment. Coming mid-week, a stronger-than-expected build in US crude oil stocks dragged prices lower. The forecast by OPEC reported an oversupply of more than two million barrels per day in the market. The sell-off remained intact on Friday as investors remained cautious before the US jobs data. The MCX September contract opened on Monday at 2,993 and closed the Friday session at 3,110, touching a high of 3,260.

Crude Oil Trade With Gains
Source: MCX, Equitymaster

Natural Gas

Natural gas opened the week on a negative note as forecasts for mild weather across key consumption regions dampened the demand expectations for the fuel. The losses were extended on Wednesday as participants awaited the weekly information on US gas inventories. During the end of the week, prices remained low on the back of the US jobs data. MCX September contract opened the week at 180.20. It traded at a low of 175.40 and finally closed the Friday session at 178.40.

CURRENCIES

INR/USD

USD traded on a volatile note during the early week. The dollar index, which tracks the USD against a basket of six rival currencies, stood about 1.7% lower for the month of August. However, dollar stood firm against the rupee on the back of month-end dollar demand from importers. On Wednesday, it traded positively as stocks around global markets recovered from their recent lows. During the end of the week, the dollar sank against the yen as Tokyo shares fell to a seven-month low. On Monday, the rupee opened the session at 66.61 against the US dollar and settled at 66.77 to close the week.

USD Trades On A Choppy Note
Source: NSE, Equitymaster

INR/ EUR

Euro started the week on a firm note against basket of currencies. It rose 0.6% as against the dollar on Monday. It later witnessed buying interest as investors turned wary on concerns about China's economy. However, euro gave up its gains and traded lower against the USD on Friday. On Monday, EUR against the INR opened at 74.85. It reached a high of 75.51 and a low of 73.86 and closed the week at 74.35.

INR/GBP

GBP against the INR opened at 102.74. GBP witnessed volatility for the entire week. It remained under pressure against the USD as investors kept their eyes on the US nonfarm payrolls. Further, the European Central Bank (ECB) lowered its forecasts for growth and inflation, referring to the oil prices and the China slowdown. On Friday, the pound fell to a three-month low against the US dollar as the further possible easing measures declared by ECB weighed on investor sentiment. Friday, the GBP traded on a firm note against the INR and ended the week at 101.62.

INR/JPY

JPY against the Indian INR started the week at 55.08. The yen traded firm against the USD on Monday. This was after weakness in equities shifted funds to higher-yielding currencies and assets. On Friday, the yet witnessed maximum buying interest after Tokyo shares fell to a seven-month low in edgy trading ahead of the US jobs data. JPY against the INR traded at a low of 54.90 and a high of 56.13. Finally, on Friday, it stood at 56.04 against the rupee.

Commodities 28th Aug 4th Sept % Change
Gold 26,623 26,532.00 -0.34%
Silver 34,378 34,715.00 0.98%
Natural Gas 181 178.40 -1.43%
Crude Oil 3,005 3,110.00 3.49%
Currencies 28th Aug 4th Sept % Change
INR / USD 66.51 66.77 -0.40%
INR / EUR 74.94 74.35 0.80%
INR / GBP 102.21 101.62 0.60%
INR / JPY 55.02 56.04 -1.85%

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