SENTIMENT INDICATOR (NIFTY)

SENTIMENT INDICATOR (BANKNIFTY)

FII’S ACTIVITY IN INDEX FUTURE

FII’s ACTIVITY IN DERIVATIVE SEGMENT

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SPICES

Turmeric futures (Mar) is expected to witness a major downside of 6100-5900 levels. The reason is that the new crop has started arriving in the markets of Nizamabad in Telangana. Against this, the demand is sluggish as the supply is coming from the six-month crop and has a moisture level of 20-30%, as compared to the normal of 7%. Due to delayed fortnight rains & poor weather conditions, the drying of the crop is taking time than usual & increasing the moisture level. The arrivals of finger and bulb varieties in Nizamabad market are fetching Rs.4000-4800 per 100 kg and 4,000 rupees & the old bulb variety is available for Rs.6,000 rupees per 100 kg, while the finger variety is sold for 6,100 rupees, respectively. Jeera futures (Mar) can crash towards 15200- 15000 levels. The favourable climatic conditions and improved water availability following good monsoon rains have brightened crop prospects. In Gujarat, the weather conditions are favorable & if it remains same for the next ten days then there will be a very good crop. As Per the latest data in Gujarat there is a 36% rise in area under cultivation of this spice over last year. Overall, the market participants are expecting crop size of about 5 lakh tonnes as compared to 4.1 lakh tonnes in the previous year. Dhaniya futures (Apr) will possibly continue to witness selling pressure in the range of 7100-7150 & correct towards 6565-6500 levels. This season, for coriander the area under cultivation in Gujarat is multiple times higher at 82,105 hectares (29,630 hectares) & weather conditions are favoring the crop’s growth.

BULLIONS

Bullion counter is witnessing huge volatility amid the geopolitical tensions in Middle East. Gold hit life time high of above 41000 levels in MCX last week on fear that increased tensions between US and Iran could lead to war. But sharp profit booking was seen recently which can continue further as de-escalation in U.S.-Iran tensions reduced safe haven demand. Markets received a respite after U.S. President Donald Trump responded to Iran’s missile attacks with sanctions instead of military action. The U.S. House of Representatives passed a resolution on Thursday to stop Trump from further military action against Iran, days after he ordered a drone strike that killed a top Iranian commander and raised fears of war. Gold may further dip towards 39200 by facing resistance near 41000 whereas silver may decline towards 46000 while taking resistance near 48500. Meanwhile investors are now focused on a ‘Phase 1’ trade deal signing between Washington and Beijing this week. Trump stated that his administration will start negotiating the 'Phase 2' agreement soon but that he might wait to complete any deal until after November's U.S. presidential election. The World Bank trimmed its global growth forecasts for 2020 due to a slower-than-expected recovery in trade and investment despite cooler trade tensions between the United States and China. India's gold imports in 2019 fell 12% from a year ago to the lowest level in three years, as retail buying faltered in the second half after local prices rallied to a record high. Perth Mint's gold product sales in December rose to their highest in more than three years, citing higher demand from Germany.

OIL AND OILSEEDS

Soybean futures (Feb) is likely to trade with a downside bias in the range of 4450-4250 levels. The stockists & exporters are refraining from fresh purchase at such higher levels & waiting for a volatility to cool down. In the present scenario, there is a lot of fundamental news impacting the price movement from both the sides. The export of oilmeals has taken a sharp hit as lack of export incentives is hurting the interests of exporters. Mustard futures (Feb) may witness a good amount of correction & test the support of 4420, facing resistance near 4570. The sentiments are bearish as the supply is higher even during the ongoing lean period because of a bigger crop in 2018-19 (Jul-Jun). Further, the oilseeds acreage remained almost at last year's level. The mustard crop will benefit greatly in areas where there has been rain, because this crop will be strengthened by this rain. The latest statistics cited that the progressive area as on 3rd January for the season 2019-20 was 66.62 lh, as compared to 67.03 during the 2018.19 lh 2018-19 season. CPO futures (Jan) may continue to rule higher & test 850-870 levels. The decision of restricting imports of RBD Palm Oil and RBD Palmolein may create dis-equilibrium between demand-supply. While, soy oil futures (Feb) may take an attempt to break the near term resistance near 950 & escalate further towards 965-975 levels. There are talks that the Centre has also been looking at options such as limiting import of refined edible oils to 5-kg consumer packs, and restricting shipments to a few ports, in order to stem the rise in shipments.

ENERGY COMPLEX

Crude oil prices may witness further selling pressure as the threat of war in the Middle East, a major oil producing region receded and investors switched their attention to economic growth prospects and demand for crude. Crude oil may move further lower as it can test 4000 while facing resistance near 4450. Meanwhile according to US President Trump “Iran was "standing down" after the missile attacks that left no casualties”, with Tehran say the strikes "concluded" its response to the Soleimani killing. Meanwhile prices downside may be capped from higher compliance among the Organization of the Petroleum Exporting Countries (OPEC) on meeting production quota curbs aimed at reducing supply. Prices got support as US Iran war could disrupt shipping in the world's busiest sea route for oil, the Strait of Hormuz. Around a fifth of global oil supply passes through the strait which connects the Gulf with the Arabian Sea. Natural gas can witness some short covering at lower levels as it can test 165 by taking support near 148 on forecast of colder weather in US. U.S. natural gas futures edged up from a near four-month low on forecasts calling for a little colder weather in late January as meteorologists projected the weather in the Lower 48 states will turn to colder-than-usual from Jan. 16-18 before returning to normal through Jan. 24. U.S. Energy Information Administration (EIA) stated that utilities pulled 44 billion cubic feet (bcf) of gas from storage during the week ended Jan. 3, lower than the 53 bcf as forecasted.

OTHER COMMODITIES

Cotton futures (Jan) is looking bullish & it has the potential to test 20170- 20380 levels on the higher side. The exports of cotton from India is gaining momentum due to depreciation in the rupee and prompting Asian buyers such as China, Bangladesh and Vietnam to raise Indian purchases. As per the latest statistics, the balance of 32 lakh bales export shipments are expected to be shipped during the period from 1st January 2020 to 30th September. Regarding international market, the participants of the cotton market will keep a close watch on the historic event of the signing event of the U.S-China deal, which will give a boost to sentiments of agro commodities on Jan. 15. In days to come, we may see chana futures (Mar) going down further to 4295-4200 levels as the selling pressure is about to increase in the spot markets. The new chana crop has started arriving in Kalaburagi, a key market in Karnataka. It also has few takers as higher moisture content of around 20% as compared with the normal moisture content of 7-8%, restricting demand from dal millers and domestic stockists. Adequate rainfall in the period of Sep-Oct has left enough moisture in the soil required for growing chana. Rain during this time is like nectar for pulses crop and will increase the yield. Guar gum futures (Feb) is expected to trade firm in the range of 7200-7700 levels. The crude prices moving northwards could lead to a surge in exports of guar gum to US in the coming weeks. The industry is expecting to export 330,000 tonnes of guar gum this financial year.

BASE METALS

Base metal counter may remain on a positive path on easing of geopolitical tensions and as US and China are expected to sign phase 1 trade deal this week. U.S. President Donald Trump, announced last month that the Phase 1 trade deals with China would be signed on Jan. 15. Meanwhile China will keep its inflation target unchanged this year at about 3%, sources told Reuters, suggesting policymakers will roll out more economic support measures while avoiding aggressive stimulus. Copper may take support near 440 levels and recover towards 460 levels. Copper inventories in warehouses monitored by the LME to 138,400 tonnes, the lowest since March 2019. Copper production in Democratic Republic of Congo rose 15.9% year-on-year to 1.308 million tonnes for the period from January to November 2019. Copper output slumped at Chile's state miner Codelco and BHP's BHP.AX sprawling Escondida mine in November, according to Chile state copper agency Cochilco. Meanwhile, lead may remain sideways as it can move in the range of 150-157 levels. Zinc may take support near 175 levels and can recover towards 187. Nickel prices can move with sideways path as it may face resistance near 1050 while taking support near 1000 levels. Indonesia has approved environmental impact studies for factories to produce battery-grade nickel chemicals in Morowali. Aluminium prices can recover towards 146 levels by taking support near 137 levels. China's Henan Shenhuo Group is set to commence production at the first 150,000 tonne per annum of its Aluminium smelting capacity in Wenshan prefecture, Yunnan province.

TREND SHEET

TECHNICAL RECOMMENDATIONS

NATURAL GAS MCX (JAN) contract closed at Rs. 153.20 on 09th Jan’2020. The contract made its high of Rs. 209.90 on 06th Nov’19 and a low of Rs. 148.90 on 03rd Jan’2020. The 18-day Exponential Moving Average of the commodity is currently at Rs. 157.77. On the daily chart, the commodity has Relative Strength Index (14-day) value of 39.671.

One can buy above Rs. 158 for a target of Rs. 178 with the stop loss of Rs. 148.

COPPER MCX (JAN) contract closed at Rs. 449.95 on 09th Jan’2020. The contract made its high of Rs. 454.05 on 07th Nov’19 and a low of Rs. 432.70 on 04th Dec’19. The 18-day Exponential Moving Average of the commodity is currently at Rs. 446.24. On the daily chart, the commodity has Relative Strength Index (14-day) value of 54.638.

One can buy above Rs. 454 for a target of Rs. 465 with the stop loss of Rs. 449.

COTTON MCX (JAN) contract was closed at Rs. 19800.00 on 09th Jan’2020. The contract made its high of Rs. 20030.00 on 10th Jan’19 and a low of Rs. 18900.00 on 11th Nov’19. The 18-day Exponential Moving Average of the commodity is currently at Rs. 19610.87. On the daily chart, the commodity has Relative Strength Index (14-day) value of 73.925.

One can buy near Rs. 19840 for a target of Rs. 20400 with the stop loss of Rs 19560.

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NEWS DIGEST

Ÿ The "import policy" is amended from "free to restricted" for refined bleached deodorised palm oil and refined bleached deodorised palmolein. - Directorate General of Foreign Trade (DGFT)

Ÿ The overall export of oilmeals during April-Dec., 2019 is reported at 1,802,434 tons compared to 2,411,248 tons in April-Dec., 2018 i.e. down by 25%. - Solvent Extractors’ Association of India.

Ÿ Ÿ US will immediately impose punishing economic sanctions against Iran. These sanctions will remain till Iran's Behavior Improves. – U.S President.

Ÿ China’s Vice Premier Liu He, head of the country’s negotiation team in Sino-US trade talks, will sign a “Phase 1” deal in Washington next week, the commerce ministry said.

Ÿ BSE has suspended futures trading in soybean, castor seed and chana contracts.

Ÿ Additional Margin of 1% with effect from January 13, 2020 and further additional margin of 1% (total 2%) with effect from January 20, 2020 to be levied on Gold (all variants) & Crude Oil contracts.

ŸŸ The trading turnover at India’s largest commodity exchange MCX jumped to a nearly seven-year high at Rs 62,318 crore.

Ÿ I ndia's gold imports in 2019 fell 12% from a year ago to the lowest level in three years.

Ÿ Venezuela's oil exports plummeted 32% last year to 1.001 million barrels per day

Japan's services sector saw its deepest contraction in more than three years in December.

Canadian miner First Quantum Minerals Ltd is weighing investment of around $1 billion to lift output at Africa's biggest copper mine in Zambia.

WEEKLY COMMENTARY

2020 started with bang; knee jerk reaction was witnessed everywhere as financial market reacted on US and Iran war tension. For the time being, market ignored the positive economic data and scheduled sign on first phase of trade deal. Gold came into insurance role once again and prices skyrocketed on first two days. On Wednesday, gold prices soared to $1,611, a sevenyear high, after Iran fired ballistic missiles at two Iraqi air bases housing U.S. forces. Later on when Trump assured “All is Well” and US is not going to retaliate fueled hope and rally has been seen in stock market and gold and silver gave up their previous gains on waning effect of war. In India, gold made fresh high of 41293 levels and in comex it hit the $1615 levels. Silver saw good upside across the board though closed the week in negative after nonstop four week upside. Crude prices also ignited in the beginning on fear of supply cut if war intense. Overall it settled in negative as the threat of war in the Middle East receded and investors switched attention to economic growth prospects and the rise in U.S. crude oil and product inventories. US stocks rallied to fresh record highs with receding possibilities of war amid some improvement in US economic releases viz ADP employment. It gave some hope to the industrial metals counter and amid all adversities most of them saw marginal upside. Aluminum saw good upside in recent weeks on surge in crude prices. China reports that CPI remained steady in Dec at 4.5% y/y, while producer price deflation eased to -0.5% y/y - analysts suggest this leaves room for the PBOC to loosen monetary policy.

We saw profit booking in oil seeds and edible oil counter though the downside was limited on Government decision to restrict RBD import from Malaysia. The sentiments of the whole oilseeds complex has turned positive after the notification given by the Directorate General of Foreign Trade (DGFT) stating that the government amended its import policy for refined bleached deodorised palm oil (RBD Palm Oil and RBD Palmolein) from current status of ‘free’ to ‘restricted’. India imports about 70 per cent or 16 million tonnes of its annual 24 million tonnes of edible oil requirements. It was a weak week for spices in which most of them saw profit booking after significant gain in previous weeks. Jeera traded bearish due to expected rise in production this season. This time, there has been an increase in the area under cultivation due to favourable weather.

NCDEX TOP GAINERS & LOSERS (% Change)

WEEKLY STOCK POSITIONS IN WAREHOUSE (NCDEX)

MCX TOP GAINERS & LOSERS (% Change)

WEEKLY STOCK POSITIONS IN WAREHOUSE (MCX)

SPOT PRICES (% change)

WEEKLY STOCK POSITIONS IN LME (IN TONNES)

PRICES OF COMMODITIES IN LME/ COMEX/ NYMEX (in US $)

Gold-Crude Ratio

Ratio defines the fair value relationship between gold & crude. In simple words, it tells us how many barrels of crude we buy with one ounce of gold. As we all know both the commodities belongs to different asset class with their own fundamentals and unique demand supply constraints. Irrespective of these odds, both do have some interesting parallels. High crude prices tend to be relating with higher rates of inflation and lower periods of economic growth. With gold being a popular hedge against inflation, there should be a degree of correlation in any price movements.

Average

From 2011 to 2020 the average of Gold-Crude ratio stood at 20.67 and their median at 20.07. This means we can buy average 20 barrels of crude with one ounce of Gold. Over the last 10 year, the ratio has hit a low of 12.15 in Jun’14 and high of 35.83 in Feb’16. Clearly there’s a significant range here, but unlike the way gold or oil trades against the US Dollar, this chart shows repeated reversions to the mean.

Then question arises what should we do with this average or how it can help us in trading?

Some market participants may talk about the Gold/Oil ratio as providing a guide of fair value for either commodity. Average Ratio at time of writing reads at 25.99 and WTI Crude trading at $59.77 which means gold should cost around $1553.42 an ounce, rather than the $1611.11 it currently trades at. The price of gold needs to fall or the price of oil needs to rise, to see a return to the long-term average.

What might push the Crude up or Gold up?

As we all are well aware about the present scenario of market. Ahead of the threat of war and complexities of the ongoing situations across Middle East, US sanctions were indeed tightened against Iran which led the rally in crude price whereas on the other hand gold is seen as safe heaven asset and buying provided support in prices. Also Gold provides hedge against inflation and might be the reason behind the recent rally in both commodities. Adding to this the threat of increase in inflation in US economy led central bank to adopt dovish approach to monetary policy which could also drive interest in the precious metals.

INTERNATIONAL COMMODITY PRICES

Currency Table

News Flows of last week