Rupee touches all time low; US markets bounce back on positive GDP data amidst fears of Fed pullback - Ajcon Global

The Indian rupee breached formidable resistance of 60 to the dollar to slump to a record low on Wednesday, reinforcing the vulnerability of a country with limited reserves and struggling to narrow a record-high current account deficit. The rupee's fall in the afternoon session was swift despite a feeble attempt by the central bank to defend the currency as end-of-month dollar demand from importers triggered stop-losses at around 60 the dollar that accelerated rupee falls. The faltering currency hit bonds and stocks as foreign investors, worried about an early end to U.S. stimulus and looking to see their returns eroded, have sold a combined net of more than $6 billion in both markets so far this month. The problems are being compounded by perceptions India is ill suited to defend the currency in the near-term. The Reserve Bank of India has around $291 billion in currency reserves, enough for only seven months of import cover. The government has promised measures to attract foreign investment, but remains hampered by a perception that previously announced measures such as opening up the retail sector have faltered in their implementation. The partially convertible rupee fell to an all-time low of 60.76, breaching the previous low of 59.9850 hit on June 20. It closed trading at 60.7150/7250 versus its Tuesday close of 59.66/67. India is due to post current account deficit data for the first three months of the year on Friday, and any data that shows that gap has not narrowed from a record high of 6.7% of gross domestic product in the October-December quarter could spark more selling in domestic markets. For now, a cautious RBI is likely to remain the first line of defence. The RBI was seen intervening on more than one occasion on Wednesday to stem the fall, selling dollars via state-run banks, but failed to prevent a slump. The central bank has also been asking banks about the nature of flows and intraday open positions, which is being eyed by traders as a potential precursor for rules mandating a cut in speculative trades. The RBI did that in December 2011 when it mandated lenders to reduce their intraday net open positions by 50-75%.

Globally, stocks rallied for a second day on Wednesday, recouping some recent losses on reduced concern that the Federal Reserve will begin to withdraw its stimulus in the near future. The broad-based advance lifted the S&P 500 above the 1,600 threshold for the first time since last Thursday. Stocks have recently sold off after the Fed said it is moving closer to reducing its monthly bond-buying efforts, but the last two days of buying show some believe the market has overreacted. A1l 10 of the S&P 500 industry sectors gained, with the healthcare and utilities sectors leading the way. Johnson & Johnson was the S&P 500's second-biggest mover. The healthcare company's stock rose 1.9% to USD 86.99. The rally followed data showing the US economy grew at an annual rate of 1.8% in the first quarter, well below expectations for gross domestic product to grow at a 2.4% annual rate. While the GDP data looks backward and includes the start of cutbacks in federal spending, it could influence the Fed's considerations of whether the economy is strong enough for it to begin scaling back its USD 85 billion a month in bond purchases. Should this contribute to keeping the Fed from moving sooner, it would be seen as supportive for stocks. Stocks have been closely tied to the central bank's easy money policy, with the Dow and the S&P 500 hitting a series of record closing highs as investors bet that the bond buying would remain in place, and then dropping dramatically on hints that the stimulus could be reduced before the end of the year. US Treasury bond prices rose, causing bond yields to fall. Lower bond yields enhance the appeal of equities. The Dow Jones industrial average rose 149.83 points or 1.02%, to end at 14,910.14. The S&P 500 gained 15.23 points or 0.96%, to finish at 1,603.26. The Nasdaq Composite added 28.34 points or 0.85%, to close at 3,376.22. The CBOE Volatility Index or VIX, Wall Street's favorite barometer of investor anxiety, fell 6.8% to 17.21. Volume was about average, with 6.48 billion shares traded on American exchanges. The S&P 500 gained 1.9% over the past two sessions, its best two-day rally in three weeks following a massive selloff. Last week, the S&P 500 index posted its worst week since April. The benchmark index remains 4% below its all-time closing high of 1,669.16 reached on May 21.

Tech companies' shares advanced following bullish comments from analysts. Adobe Systems Inc rose 3% to USD 45.68 after Jefferies & Co upgraded the stock to "buy" from "hold," citing expectations for more new users. Microsoft Corp climbed 2% to USD 34.35 after Morgan Stanley raised its rating to "overweight" and increased its price target on the stock to USD 40.

On the downside, gold stocks slid as the precious metal fell to its lowest in almost three years, putting it on course for a record quarterly loss. US-listed shares of Gold Fields Ltd dropped 7.5% to USD 4.70 and Barrick Gold Corp fell 8.3% to USD 14.78. Newmont Mining was one of the S&P 500's biggest decliners, sliding 5.9% to USD 27.22. Apollo Group, owner of the University of Phoenix, was the S&P 500's biggest decliner, sinking 10.2% to USD 17.39 a day after reporting its third-quarter results.

Chinese money market rates extended their moderation into a fifth day on Thursday after the central bank did not drain any cash from the market, and stocks recovered some of their big losses from earlier in the week as investor sentiment steadied.

The euro declined to a three-week low against the U.S. dollar and fell against Japan's yen on Wednesday after European Central Bank President Mario Draghi highlighted risks to euro zone growth and said monetary policy will stay accommodative. Dovish easing sentiment surrounding the ECB contrasts with the expectations for the Federal Reserve to slow its bond purchases sooner than other central banks. Spreads between 10-year U.S. Treasuries and German bund yields have widened to their highest since April 2010 in favor of dollar assets.

Source : Equity Bulls

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