Global Markets

• The spreads between Treasury 2- year notes and 30-year bonds reached the widest since July as the U.S. sold $81 billion in notes and bonds and on concerns over Federal Reserve keeping interest rates near record lows.
• The advance figure for US seasonally adjusted initial unemployment claims reached 502,000 in the week ending November 7, which is a decrease of 12000 Further, Confidence among US consumer unexpectedly dropped in November as the loss of jobs threatened to undermine the economy. The Index declined to a three month low of 66 from 70.6 in October.
• European Industrial output rose for a fifth month in September as the global recovery bolstered order for goods ranging from steel to machinery. Production of the economy of the 16 nations using the Euro increased 0.3% from August when it gained 1.2%. The European Central Bank indicated that it would withdraw some emergency liquidity tools as the recovery progresses.
• Unemployment in Britain fell to 2.461 Million in September raising hopes of recovery. However with the male unemployment and long term unemployment continuing to rise and youth unemployment at record high, there are concerns on the sustainability of the recovery in the job market.
• The Chinese Industrial Output for the Year till October accelerated to a 19 month high of 16.1% from 13.1% in the 12 month to September. According to government sources the Chinese industrial production in November and December is expected to grow by 16% from a year earlier.
• Precious metals such as gold and silver continue to surge during the week making new highs with gold surpassing the earlier high of USD 1100 per ounce and registering a new high of USD 1109.90 per ounce.

Indian Equity Markets

• Strong buying across-the-board lifted the market higher last week after a recent steep correction. The sentiment was helped by the strong Industrial Production numbers, Indian government's push towards disinvestment, along with its plan to exit fiscal stimulus in a phased manner. The BSE Mid-Cap index underperformed the Sensex, rising 2.63% to 6,418.65. The BSE Small-cap index also under-performed the Sensex, gaining 3.33% to 7,409.70.
• Lending more credibility to the sustainability of an economic revival, the Index of Industrial Production (IIP) jumped a robust 9.1 per cent in September ’09 compared with the same month last year. The sharp growth also raised doubts whether the Reserve Bank of India would tighten its monetary stance further by increasing key interest rates ahead of its next review in January 2010.
• The country’s export contracted at a lower rate in October than in recent months following an improved show by number of sectors, suggesting that demand may be finally looking up in the developed world.

Outlook: With no major domestic trigger, the equity market is expected to move in tandem with the global markets. But upward momentum is likely to continue as sentiment in the market remains positive.

Indian Fixed Income Markets

• While the 10 year bond declined for most part of the week, the 10 year bond rallied after the Reserve Bank Of India announced auction cut offs lower than what the market expected. The RBI auctioned INR 4000 Cr of the 10 year benchmark, and INR 3000 Cr each of the 7.02% 2016 bond and 8.24% 2027 bond. The cut-off yield was at 7.36%, 7. 343% and 8.2795% respectively. Considering that the auction cut offs were ahead of expectation, there were no devolvement on primary dealers.
• India’s inflation accelerated to 1.34% in October, the nation’s first monthly prices report showed adding pressure on the Country’s Central Bank to increase borrowing cost from record low. Faster price gains and quickening economic recovery may spur RBI to start reversing the record reduction in benchmark interest rates.

Outlook: With majority of the government borrowing done, any incremental government borrowing is expected to put lesser pressure on yields.

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