BSE Metal Index has been a high beta performer historically, gaining more than the markets in rallies and falling more in downtrends. Commodies and Dollar Index have had a negative co-relation and slowly the dollar index is showing bottoming signs. Commodities over the globe may be impacted when Dollar rises against a basket of major currencies as investors flock to safe assets in uncertain times.
The Dollar index is showing strength after recent downtrend and Credit Agencies downgrading Greece rating have had a positive impact on Dollar. Greece is one among 16 countries having Euro as their currency and Euro has 57.6% weight in Dollar Index which makes it a heavyweight. Any depreciation in Euro would make Dollar Index move higher and global commodities may take a hit.
Dollar Index is comfortably trading above 76 which is a sign of strength in Dollar and weakness for other currencies.
Metal stocks would be impacted-
- India's steel imports in November rose 29% from a year earlier due to a sharp rise in consumption and attractive prices in global markets. The country imported 654,000 metric tons of finished steel, up from 507,000 tons in November 2008, due to a pickup in car sales and consumer goods, a senior official from the Ministry of Steel, who didn't want to be named, told Dow Jones Newswires.
- Low global prices were a major cause of the sharp rise in November imports, said a senior executive of SAIL, the country's largest steel producer by volume.
- Steel Prices expected to remain lower-
- India steel imports are mostly from China, Russia, Ukraine, France and Italy, where production was higher than local demand, leading to a fall in those country's export prices.
- In 2008, Chinese steel capacity was pegged at 660Mt, while apparent assumption was 450Mt. In 1H09, over RMB140B was invested in steel, and 58Mt of new capacity is under construction. While China repeatedly announces its plan to curb capacity, its track record is poor.
- Excess capacity a key risk — Many causes of China's overcapacity seem structural, and will likely take time to resolve. This should suggest below average profitability for the global steel sector.
Euro Drops Below $1.47 On Flight To Safer Assets http://online.wsj.com/article/
Fitch downgrades Greek sovereign, bank debt http://news.smh.com.au/
History of Euro http://en.wikipedia.org/wiki/
1 comment:
Hi,
For a look at one particular extreme scenario of where the dollar can be heading, see:
On the catastrophic collapse of the Dollar
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