Economic Update _24th July 2012

Negative news from Europe driving USD strength against all major currencies around the World. As per report Valencia has asked for bailout and  as many as 6 more Countries out of 17 Countries of Euro zone will seek financial support .Euro continue to suffer against all major currencies around the World due to negative news flowing to the Market again relating to Greece & Spain . Moody has changed the Rating outlook of Germany, Luxembourg & Netherland to negative from Stable and they are now at par with Austria & France . Only Finland is holding good Rating .  Euro has gone down to two year lowest level below 1.2067 against USD.  USD 122 Billion rescue packages have been sanctioned for the Banking crisis in Spain but it seems it is not enough to end the problem. The interest rate on Spain 10 Year Bond has gone to record high of 7.52%.  The probability of Greece leaving Euro is increasing and in this situation Euro will go down below 1.20 and rupee will be under pressure.

The announcement by Government of India to disinvest shares of SAIL to garner INR 10,000 cr and hike the diesel price will be step in right direction to keep the fiscal deficit under control. Indian Rupee has been depreciating since last few trading session and lost 65 bps on 23^rd July to touch 56. Looking into the Month end Demand of Indian Importer it is expected that INR may go to the historical high of 57.32 temporarily. Although the much awaited President Election is now over it is not likely that reform announcement will come immediately. This is because some Key allies & supporter during President Election of UPA Government has opposed to the FDI in retail. Some other political partner like NCP has also created new tension for the Government which will shift the priority for some days. World Equity Market has gone down due to the Economic concern resurfacing again.  Crude price which started increasing in the last 15days to above USD 100/bbl has come down due to Global economic concern. China Manufacturing PMI data has improved marginally to 49.5 from 48.2.