FICC TIMES http://www.rsquareadvisors.com/index. html http://www.rsquareadvisors.com/index.

html
THE WEEK GONE BY AND THE WEEK AHEAD .

12 July, 2013

Federal Reserve chairman Ben Bernanke appeared to have dampened the more hysterical predictions of an imminent rise in US rates after fueling the debate in his previous note. His address on Wednesday night set the tone for capital flow for the rest of the week. Emerging markets currencies and bonds regained some of the losses suffered over the past couple of weeks and equity markets around the world rallied. With US, European and Japanese central bank reaffirming their loose monetary policy stance, the fear of imminent tapering has gone away for the time being.

The dollar which had touched 3- year highs before Wednesdays feds remarks tumbled 1.2% against a basket of major currencies, while the euro shot up to $1.32 before easing to $1.31 by the end of the week. The big swings in the global bonds, currencies and equity markets have highlighted once again a very trick job that central bankers around the world have put themselves into by getting the markets used to easy money provided during the global financial crisis.

The key events of last week:

28 Dec 2012

Americans increased their borrowing in May at the fastest pace in a year. Borrowing in the category that includes credit cards reached its highest point since the fall of 2010. Americans stepped up their borrowing by $19.6 billion in May compared with April, the Federal Reserve said Monday in its monthly report on consumer credit. Thursday's July 4th holiday made for an extra-long weekend for many consumers and drove ICSCGoldman's same-store sales tally 3.0 percent higher in the July 6th week. The week-to-week change is actually higher than the year-on-year change which is at plus 2.9 percent which nevertheless is the strongest reading since May.

108, Madhava, Bandra Family Court Lane, BKC, Bandra (E), Mumbai 51

Page 1

THE WEEK GONE BY AND THE WEEK AHEAD.

The Johnson Redbook Retail Sales Index was up 3.6% in the fifth and final week of June following a 2.9% gain the prior week. Month-to-date, June was up 3.0% compared to June of last year (relative to a target of a 3.3% gain). Month-over-month showed a 0.3% drop (compared to a flat target).

The following are the median forecasts for Japanese data due in the coming week provided by economists surveyed by MNI. Core private-sector machinery orders, a leading indicator of capital spending, are expected to have posted the first month-onmonth rise in two months in May, up 1.7%, following a sharp 8.8% drop in April, when orders took a breather after marking the largest gain on record at +14.2% in March.

Japanese government bond prices dipped slightly on Friday, on disappointment over the Bank of Japan's bond buying offer and profit-taking after gains in the past few days, lifting the 10-year yield off three-week lows. The 10-year JGB futures fell 0.17 in price to 142.95 while the yield on the 10-year cash bond rose 1.5 basis points to 0.830 percent, off three-week low of 0.815 percent hit on Thursday and again earlier on Friday. Mortgage rates keep rising and continue to choke off demand for mortgage applications. The purchase index is down 3.0 percent in the July 5 week while the refinance index, which has especially been falling back, is down 4 percent. The average Page 2

THE WEEK GONE BY AND THE WEEK AHEAD.

rate for conforming 30-year mortgages ($417,500 or less) is up a steep 10 basis points in the week to 4.68 percent for the highest rate since July 2011. Rising rates are an increasing headwind for housing and will limit its leadership for the economy. Wholesale inventories had been sloping slightly higher but a big draw in May now makes the slope look flat, in what is a positive for the supply chain. Inventories at the wholesale level fell 0.5 percent in May for the largest monthly draw since September 2011. The draw reflects a big jump in sales, at plus 1.6 percent in May which brings down the sector's stocks-to-shipment ratio to 1.18 which is the lowest since April last year Very strong demand made for very large draws in oil and gasoline inventories in the July 5 week. Oil inventories fell 9.9 million barrels and follow the prior week's even larger 10.3 million barrel draw. Oil inventories stand at 373.9 million barrels which is the lowest level since February. Gasoline inventories are also down for a second straight week with a sizable 2.6 million barrel draw.

Retail sales growth held steady and firm in June based on today's chain-store sales reports where year-on-year rates are little changed from May. There are not very many chains issuing monthly statements anymore but the few remaining are generally pleased with their June results which some say got a lift from seasonable weather that helped sales of summer goods.

The number of Americans filing for unemployment benefits unexpectedly increased to a two-month high last week. Swings in jobless applications are typical in July as auto plants close for annual retooling. First-time claims rose by 16,000 to 360,000 in the week ended July 6 from a revised 344,000, Labor Department figures showed today in Washington. The Bloomberg Consumer Comfort Index (COMFCOMF) improved to minus 27.3 in the period ended July 7, its highest level since January 2008, from minus 27.5 a week earlier. A measure of personal finances increased to the second-strongest reading since April Page 3

THE WEEK GONE BY AND THE WEEK AHEAD.

2008, while the buying climate gauge rose to a nine-week high.

M2 growth slowed sharply, to just 14.0% at the end of June (MNI median 15.3%, previous 15.8%), after the PBOC tightened liquidity to the end of the month to force banks to deleverage. The slowdown in money supply growth was even more noticeable given new loans actually rose in June, to CNY860.5 billion from CNY667.4 billion. Assuming the money multiplier was unchanged, that should have translated into faster money supply growth.

The U.S. Federal Reserves balance sheet grew in the latest week as the U.S. central bank added to its holdings of Treasury debt, Fed data released on Thursday showed. The Feds balance sheet liabilities, which are a broad gauge of its lending to the financial system, stood at $ 3.462 trillion on July 10, compared with $ 3.450 trillion on July 3.

The producer price index in May posted a 0.5 percent increase after falling 0.7 percent prior month. The core rate, which excludes both food and energy, held steady at 0.1 percent.

And closer home.

Domestic passenger car sales declined by 9 per cent to 1,39,632 units in June this year, from 1,53,450 units in the same month of 2012. According to the data released by the Society of Indian Automobile Manufacturers (SIAM), motorcycle sales in last month declined by 9.16 per cent to 7,99,139 units from 8,79,721 units in the same month previous year. Indian economy is seeing signs of upward momentum helped by gradual reduction of inflationary pressure though the country's growth still remains "relatively weak", according to Paris-based think tank OECD. India's CLI marginally rose to 97.6 in May. The reading stood at 97.3 in April, March and February. In January, the reading was better at 97.7. Dollar/rupee fell to two-week low Friday on selling by state-run banks, purportedly on behalf of the Reserve Bank of India amid tapering supplies of the greenback, dealers said. India's Index of Industrial Production may fall to 3-month low to 1.45% in May compared to a growth of 2.25% a month earlier mainly due to contraction in crude oil, natural gas and as local demand remained weak, the median estimate of a TickerNews Page 4

THE WEEK GONE BY AND THE WEEK AHEAD.

poll of 10 economists showed. Forward premiums rose tracking the strengthening of the rupee in spot as importers began booking contracts in the Forward markets after selling in the spot," said a dealer with a state-owned bank.

Important upcoming International events to be tracked:

Date 15-07-2013 15-07-2013 15-07-2013 16-07-2013 16-07-2013 16-07-2013 16-07-2013 16-07-2013 16-07-2013 16-07-2013 17-07-2013 17-07-2013 17-07-2013 18-07-2013 18-07-2013 18-07-2013 19-07-2013 19-07-2013 Time 18:00 IST 18:00 IST 19:30 IST 14:30 IST 14:30 IST 17:15 18:00 18:25 18:30 19:30 05:20 16:30 18:00 18:00 19:15 19:30 02:00 02:00 IST IST IST IST IST IST IST IST IST IST IST IST IST Country US US US European Monetary Union European Monetary Union US US US US US Japan US US US US US US US Event Empire State Mfg Survey Retail Sales Business Inventories Merchandise Trade HICP ICSC-Goldman Store Sales Consumer Price Index Redbook Treasury International Capital (Foreign Demand for LongTerm U.S. Securities) Housing Market Index (Housing Market Index) BoJ MPB Minutes MBA Purchase Applications Housing Starts Jobless Claims Bloomberg Consumer Comfort Index (Level) Leading Indicators Fed Balance Sheet Money Supply

Important upcoming Domestic Events:

Date 15-07-2013 19-07-2013 19-07-2013 22-07-2013 17:00 IST 17:00 IST Time Country India India India India Event WPI Inflation (YoY Chg) New Series (Base 2004-05) WMA (ways and means advance) - to central govt FX reserve (change on wk) Output of Crude oil, Natural gas, refinery

TECHNICAL VIEW
After opening up around 60.11, rupee hovered in the range of 59.3 to 60.5 during the last week which finally closed around 59.58. There are positive signals emanating from technical indicators viewpoint. Medium term (Daily) and short term ( hourly) indicators are slowly turning bullish for rupee which points a long-lasting USDINR Page 5

THE WEEK GONE BY AND THE WEEK AHEAD.

uptrend come to an end or at least paused for a while which is a clear opportunity to initiate hedges for infrastructure companies. We expect INR to consolidate in the range of 59 to 61 going forward. After fed announcements, QE tapering worries have been subdued i.e. clearly a positive signal for USDINR.

Source : Reuter Eikon

Disclaimer:This document is copyrighted by R-Square and is intended solely for the use of the R-Square client, individual, or entity to which it
is addressed. This document may not be reproduced in any manner or re-distributed by any means to any person outside of the recipient's organization without the express consent of R-Square. By accepting this document you agree to be bound by the foregoing limitations. This is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy. R-Square may advise the issuers mentioned herein or deal as a principal in or own or act as a market maker for securities/instruments mentioned herein. The research and other information provided herein speaks only as of its date. We have not undertaken, and will not undertake any duty to update the research or information or otherwise advise you of changes in the research or information. This email message and any attachments are being sent by R-Square and may be confidential. If you are not the intended recipient, please notify the sender immediately by email and delete all copies of this message and any attachments.

R-Square Advisors LLP

108, Madhava, Bandra-Kurla Complex, Bandra (E), Mumbai 400051 Tel: +91 22 6111 9494
Email: info@rsquareadvisors.com Website: www.rsquareadvisors.com

Page 6