Sunday, June 05, 2016

THE WEEK AHEAD

Outcome of RBI's monetary policy review to dictate trend



The major event next week is a monetary policy review from the Reserve Bank of India (RBI). The RBI will announce the Second Bi-monthly Monetary Policy Statement, 2016-17 at 11.00 IST on Tuesday, 7 June 2016. Interest rate sensitive banking, realty and auto stocks will be in focus. Purchases of both residential and commercial property are largely driven by finance. Purchases of cars, utility vehicles and commercial vehicles are largely driven by finance.

Meanwhile, macroeconomic data, trend in global markets, investment by foreign portfolio investors (FPIs) and domestic institutional investors (DIIs), the movement of rupee against the dollar and crude oil price movement will dictate market trend in the near term.

Among key macro economic announcements, the government is scheduled to unveil industrial production data for April 2016 at 17:30 IST on Friday, 10 June 2016. India's industrial production (IIP) growth moderated to 0.1% in March 2016 over March 2015 compared with 2% growth recorded in February 2016.

Investors will closely watch the timing of arrival of monsoon rains. India's weather department, the India Meteorological Department (IMD) in its second stage monsoon forecast issued on Thursday, 2 June 2016, said that rainfall over the country as a whole for the 2016 southwest monsoon season is most likely to be above normal. Quantitatively, monsoon season rainfall for the country as a whole is likely to be 106% of the long period average (LPA) with a model error of plus/minus 4%. In its first stage forecast issued on 12 April 2016, the IMD had forecast rainfall to be 106% of the LPA with a model error of plus/minus 5%.

In its region wise forecast, the IMD said that the rainfall is likely to be 108% of LPA in North-West India, 113% of LPA in Central India, 113% of LPA in South Peninsula and 94% of LPA in North-East India, all with a model error of plus/minus 8%. The rainfall over the country as whole is likely to be 107% of its LPA during July 2016 and 104% of LPA during August 2016 both with a model error of plus/minus 9%. The quantum of the rainfall and its spatial and temporal distribution are critical for the country's agriculture.

The IMD said that the rapidly declining El Nino conditions became weak in early May 2016 and now have turned to neutral ENSO conditions. Recent changes in the atmospheric conditions over the Pacific also reflect the weakening El Nino conditions. Latest forecast from IMD-IITM coupled model indicates about 50% probability of La Nina conditions to establish during the monsoon season. Most of the other models also suggest development of La Nina conditions during the latter part of the monsoon season. El Nino conditions cause deficient rains in India whereas La Nina conditions trigger abundant rains in the country.

IMD also said on 2 June 2016 that the conditions are becoming favorable for onset of southwest monsoon over Kerala during next 4-5 days. The arrival of the rains at the Kerala coast marks the onset of the June-September southwest monsoon season in India. The IMD on 15 May 2016 predicted a delay of 6 days for the onset of the monsoon rains in Kerala this year from the normal onset date which is 1 June.
On the global front, US Federal Reserve Chairwoman Janet Yellen will speak Monday, 6 June 2016, before the World Affairs Council of Philadelphia for her view on global conditions amid growing concern about the UK's 23 June 2016 referendum on whether to remain in the European Union. The speech will come three days after the May jobs report, and just over a week before US Fed officials convene for a two-day policy meeting to decide whether the economy is healthy enough for another interest-rate increase.

Asian markets will on Monday, 6 June 2016, react to the influential monthly US nonfarm payroll data for May 2016 to be released on Friday, 3 June 2016. The monthly job data would influence US monetary policy. The US central bank's mandate centers on maximizing employment and keeping inflation at a 2% target level.

Japan will unveil Q1 Gross Domestic Product (GDP) data on Tuesday, 7 June 2016.
Stock market in Hong Kong will be shut on Thursday, 9 June 2016, for Tuen Ng Day. Stock market in China will remain shut on Thursday, 9 June 2016, and Friday, 10 June 2016, for Dragon Boat Festival.

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