Gold, bonds keep investors interested, Re follows stocks

An overnight sharp slide in the US markets triggered a weak opening in the Asian markets. Indian bourses joined in soon on Friday. During the day, the BSE Sensex tanked by over 600 points over the previous day’s close. While there was a total bloodbath in equity markets, currency and bond markets were a little subdued on account of lower volumes due to the ongoing bank strike. Commodities, on the other hand, met with the same fate as the equities.

Here’s a quick look at what the Indian currency, commodities and bonds went through on a gripping day like today.

Rupee

The rupee was near its weakest level in over five weeks in afternoon trades as domestic equities stayed deep in the red, tailing the global shares rout, fuelling concerns of outflows. The partially convertible rupee was at 44.79/80 per dollar, after touching 44.8550, its lowest since June 29. The rupee had settled 0.5 percent weaker on Thursday at 44.545/555.

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[caption id=“attachment_55218” align=“alignleft” width=“380” caption=“While there was a total bloodbath in equity markets, currency and bond markets were a little subdued on account of lower volumes due to the ongoing bank strike. Reuters”]  [/caption]

However, a one-day strike called by state-run banks to protest against the government’s move to pare its equity capital and facilitate bank consolidation, among others meant volumes were low in the domestic forex market. Retreat of the euro and most Asian currencies against the dollar also weighed on the rupee. The one-year onshore forward premium plunged to 187.25 points from 204 points close previously, for the second straight session, as exporters booked forward dollars.

One-month offshore non-deliverable forward contracts were quoted at 44.99, weaker than the onshore spot rate. In the currency futures market, the most traded near month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all at 44.9425, with the total volume touching the $6.56 billion mark.

Commodities

Gold edged up more than half a percent as investors lapped up bullion to take cover from the raging market fire on concerns that the United States may be heading towards another recession and Europe’s debt crisis is spreading.

Spot gold rose 0.84 percent to $1,661.66 an ounce by 0617 GMT, having hit a low of around $1,641. Bullion struck a record around $1,681 an ounce on Thursday before losing much of the gains.

Morgan Stanley played along and raised its price forecast for gold to $1,511 from $1,401 for 2011, citing enhanced contagion risk from the European debt crisis and continued uncertainty over US macroeconomic outlook. It also lifted its 2012 price outlook to $1,624 from $1,330.

India gold futures extended gains for a fourth session to hit a new peak following a rally in overseas markets and a weaker rupee, which traded at its lowest level in five weeks, pushing physical traders to the sidelines ahead of a slew of festivals starting later next week. The most-active gold for October delivery on the Multi Commodity Exchange (MCX) struck a record of Rs 24,300 per 10 grams, before trading 0.75 percent higher at Rs 24,247.

Oil prices continue to remain weaker, falling to near $85 a barrel on Friday in Asia amid expectations of a slowing global economy will weaken demand for crude. Benchmark oil for September delivery was down $1.31 to $85.32 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. Crude tumbled $5.30 to settle at $86.63 on Thursday.

Global commodity benchmark the Reuters-Jefferies CRB index is down more than 4 percent for the week, its biggest drop since losing nearly 9 percent in May’s across-the-board slide, also fueled by global growth concerns. London copper dropped 2 percent to $9,165 a tonne, after hitting a low of $9,143 a tonne, a level not seen since June 29. Zinc was down more than 3 percent and lead, nickel and tin slid over 2 percent.

In Shanghai, aluminium and zinc slumped by their daily trading limits of 4 percent and 6 percent, respectively, while copper dropped 4.3 percent. Shanghai rubber futures fell as much as 5.8 percent to 33,605 yuan per tonne and in Malaysia, palm oil futures dropped 2.6 percent to a session low of 3,021 ringgit.

In the grains market, Chicago Board of Trade wheat fell more than 2 percent to as low as $6.67 per bushel and corn dropped 1.6 percent to $6.90-1/2.

Bonds

Indian bond yields and swaps plunged as investors scurried to safe-haven government securities across regions on renewed concerns over global economic recovery. Local bond dealers preferred to hold on to fixed-income securities as hazy global outlook outweighed domestic worries such as the central bank’s persistent anti-inflationary stance to tame stubbornly high inflation.

The 10-year benchmark bond yield was 9 basis points lower at 8.31 percent, its lowest since July 26. Traders expect it to trade in a 8.28-8.35 percent band in the day. Positions in equities and commodities were being scrapped and a scramble for the safety of cash and top-rated government bonds continued.

Apart from signs that the US and global economy is turning weak – despite record low interest rates and the pumping of liquidity into the system – the focus was clearly on Europe, where bond yields in Spain and Italy have been blowing out, threatening the same kind of refinancing problems that have already smitten Greece, Ireland and Portugal.

Italian 10-year government bond yields rose above their Spanish equivalent. Italy has emerged as the market’s major concern after a rescue deal that was intended to stop the spread of the crisis failed to convince investors it had the firepower to ease pressure on the vast Italian bond market.