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Global markets: Cheaper crude propels markets...

May 29, 2004

Although some positive macro economic news helped, crude prices remained the major market moving force on the US bourses during the last week of the month of May. With pressure on crude prices easing off a bit, markets ended upbeat for the week. While Nasdaq edged higher by nearly 4%, Dow grew at a lower rate and ended 2% higher for the week. Proceedings for the week commenced on a mixed note with tech laden Nasdaq managing gains while the broader market witnessing a decline. Crude prices reached an all time high despite assurances from Saudi Arabia that it would increase output. This generated inflation related worries and affected investor sentiments on Monday. With crude prices settling at lower levels on Tuesday, investors did what they do best, bargain hunted at lower levels and as a result, the markets witnessed gains and returned with a flourish. The fact that there was a rush of activity on account of long Memorial Day weekend also added to the momentum. With crude prices rising again on Wednesday and a threat of a big terrorist attack on the US coming to the fore, broader market once again witnessed selling pressure. Nasdaq however, continued with its positive momentum.

The roller coaster ride continued on Thursday with bulls making a comeback, resulting into the markets witnessing robust gains. Crude prices fell below US$ 40, thus crossing an important psychological barrier and first quarter GDP growth also stood at an impressive 4.4% YoY. These factors largely contributed to the positive mood. Although markets ended little changed on Friday, the gains over the week were enough to push both the benchmark indices higher for the week. Next week, attention would largely be focused on Friday's employment report, considered to be a key indicator of the way the interest rates will shape up in the days to come.

Indices 21-May-04 28-May-04 Change
NASDAQ 1,912 1,987 3.9%
Hang Seng 11,576 12,117 4.7%
Nikkei 11,070 11,310 2.2%
BSE Sensex 4,962 4,835 -2.6%
FTSE 4,431 4,431 0.0%
Dow 9,967 10,188 2.2%
Dax 3,832 3,903 1.9%

With crude oil being a vital input for economies across the globe, softening of its prices is bound to have a positive effect everywhere. Not surprisingly then, barring a couple of exceptions, key indices across the world witnessed healthy gains. Lower than expected US first quarter GDP growth rate also added to the positive mood in countries such as Japan, since it would result into an interest rate hike delay and thus will not put brakes on robust US consumer spending, an extremely important market for Japanese goods. Amidst the euphoria however, Indian benchmark BSE ended nearly 3% lower for the week, mainly a result of growing anxiety over the government reforms.

(Price in US$) 21-May-04 28-May-04 Change
Dr.Reddy's 18.9 18.5 -2.1%
HDFC Bank 26.1 28.3 8.4%
ICICI Bank 12.7 12.9 1.6%
Infosys 81.0 82.8 2.2%
MTNL 6.7 5.8 -13.4%
Rediff 7.2 8.3 15.3%
Satyam 18.5 19.5 5.4%
Satyam Infoway 6.2 6.6 6.5%
VSNL 6.0 6.2 3.3%
Wipro 42.4 44.4 4.7%

Among the Indian ADRs, while banking, tech and dotcom companies shone and posted robust gains, mixed trend was witnessed among telecom ADRs. Positive sentiments towards Nasdaq seemed to be having a rub-off effect on Indian tech ADRs as well, as all of them ended higher for the second week in a row. Pharma major, Dr Reddy, however, ended 2% lower for the week, possibly a consequence of profit booking .as the company had posted some gains during the last week.

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