Mayhem all around! That’s the only way to describe the carnage in commodity and equity markets over the last few days. And we are not talking just India here. There is not a single player left unhurt. The shorts have been killed by margin calls. The longs are caught by surprise. They have no option but to hold their positions. Hedgers are scurrying for cover.
Realistically, there is no way you can anticipate a double-digit rally in fuel, food, fibre and metals within three weeks. Even the most bullish trader didn’t bargain for a 43% jump in coal, or a 23% leap in rice, or a 13% spurt in sugar.
The spikes are baffling. Non-oil commodity prices surged 9% in February due to supply tightness and strong investment demand. There were substantial increases in a number of commodities, particularly for coal and fertilisers, the latter partly due to strong demand fuelled by high agriculture prices.
Crude rose 3% to average $93.4/bbl, and reached $100/bbl in early March, with WTI reaching nearly $106/bbl. Coal prices soared 43% to $131/t, due to a supply squeeze.
Agriculture prices jumped 8.5% in February, led by a 15% gain in grains. Vegetable oil prices were up sharply on strong demand for food and bio-diesel. Beverage prices jumped 12%. Metals and minerals prices climbed 7%, with large gains in lead, aluminium and copper. Silver increased 10% on strong investment demand and as a hedge against inflation and the weakening dollar. But before anyone could catch their breath, US markets in grains and veg oils plummeted. The losses in corn and soya bean defy belief.
When prices show such extreme movements, exchanges have no choice but to collect special margins. For those caught unawares, the sky fell. How do you find a few lakhs in spare (and tax-paid) cash at a day’s notice? That became a huge issue for many. There were unconfirmed reports of some punters on NBoT threatening to commit suicide. Brokerages dealing with small retail investors were equally hit. (source: ET)
However, if you are an indian trader or investor for longer period (I'm talking atleast 2 years here) , this is "the" right time to go for it!! Patience is the key. One thing's for sure, markets have really taken a flip towards short to medium term bearish phase.
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