>THE NASCENT RECOVERY

THE NASCENT RECOVERY:
IS THE END NEAR FOR THE U.S. GREAT RECESSION?

• Real GDP fell by 1.0% (annualized) in the second quarter, the smallest contraction since the Great Recession began.

• Recent developments in the U.S. housing market, fiscal stimulus, and the emergence of
Chrysler and GM from bankruptcy suggest that Q3 may well show positive economic growth, a good signal that the U.S. economy has emerged from the Great Recession.

• While the recession may be coming to a close the road to recovery will not be swift. A pummelled labor market and shrunken household net-worth imply a slow-go recovery in 2010.

To see full report: THE NASCENT RECOVERY

>MCLEOD RUSSEL INDIA LIMITED (MERRILL LYNCH)

Tea Party; Raise EPS and PO

■ Reiterate Buy; raised PO to INR200; 43% upside potential
Post a strong quarter and sustainable surge in tea prices we increase PO to INR200 backed by 38% and 40% upgrade in FY10E and FY11E EPS. We estimate 13% increase in realized tea prices in FY10 which we believe will sustain through FY11. PO is pegged at 11xFY11 PE- in line with target PE of Buy rated India sugar stocks. Our new price objective offers 43% upside potential.

■ Tea prices at an all time high since yr 2000; upward bias
Production in Kenya & Sri Lanka (40% of global exports) declined 14% & 37% till April due to poor weather. Indian production is down 15% during this period. This will aggravate already existing pipeline deficit in India even if crop is normal in the rest of CY09. We expect Indian tea prices to remain firm around INR130/kg- an all time high since 2000 with an upward bias led by i) ~20mn kg est fall in India’s tea production in CY09 in addition to 23mn kg shortage and ii) strong global demand.

■ Robust Q1; Price leverage remains strong
Q1 EBIT was up 90% led by over 30% higher realizations. 1% increase in tea prices raises McLeod’s EPS by ~3.5%. We forecast 146% EPS growth in FY10 and expect EBITDA/kg to increase to INR38.5/kg from INR24.4/kg in FY09.

■ Attractive valuation vs peers
The stock trades at 7.5xFY11e PE vs Indian sugar co’s at 8x to 15x. It trades at the lower end of the range 6-27x FY11ePE for peers in global food commodities space. Adjusting for treasury shares, stock is at 5.5xFY11e PE. Valuation is attractive, in our view, given an upbeat tea price outlook. We believe risk of govt. intervention is low as tea forms just 1% of WPI basket and govt is in fact focusing on encouraging investments in tea gardens. Key risks: drastic cut in production in case of poor monsoon, lower than expected tea prices, wages and rupee appreciation.

To see full report: MCLEOD RUSSEL INDIA LIMITED

>Crude pares some losses on higher equities

Tokyo - Crude oil futures pared part of their losses Thursday in Asia, supported above USD71 a barrel as traders covered short positions, prompted by a rise in stock markets.

The next focus will be U.S. jobs data due Friday, and until then, crude prices are likely to follow stock market moves for any clues on the outlook for the U.S. economy, analysts said.

At 0612 GMT, front month September light, sweet crude oil futures on the New York Mercantile Exchange were down 36 cents at USD71.61 a barrel on Globex. September Brent crude on London's ICE futures exchange was 36 cents lower at $75.15 a barrel.

In early trading hours, crude dropped as low as USD71.19 a barrel in response to a more-than-expected build in U.S. crude oil inventories.

But the pressure wasn't strong enough to push prices down further.

Views on the U.S. economy have been optimistic, helping to support crude oil prices recently, because "economic indicators aren't as bad as they were, and equity prices have been stabilizing," said Tomokazu Amano, analyst with brokerage Mitsubishi Corporation Futures & Securities.

"Sufficient money has been supplied recently (in the U.S.). People are now feeling more comfortable than before" about economy, said Koichiro Kamei, senior analyst with investment advisory firm Market Strategy Institute in Tokyo.

The U.S. Energy Information Administration reported Wednesday a higher-than-expected 1.7 million-barrel rise in U.S. crude stockpiles in the week ended July 31. Analysts surveyed by Dow Jones Newswires expected, on average, a 500,000-barrel build. This was the second consecutive week of gain, leaving crude stocks above the average range for this time of the year.

Still, "it's difficult to sell down large volume, given that crude prices have been supported around $70 over and over," said Amano.

The Nikkei 225 Stock Average closed up 1.3% Thursday.

Front month September Nymex RBOB gasoline decreased 22 points to $2.0490 a gallon, while September Nymex heating oil fell 124 points to $1.9445 a gallon.

Source: COMMODITIESCONTROL

>Crude steady, markets wait on macro data

London - Crude oil futures retreated from new multi-month highs Thursday as market participants adopted a cautious approach ahead of a series of key macro readings.

ICE Brent crude earlier reached $76 a barrel for the first time since last October while Nymex crude reached $72.42 a barrel, its highest since the start of July, before turning lower.

Financial markets were largely static awaiting Thursday's interest rate decision from the European Central Bank, weekly U.S. jobless numbers and Friday's crucial U.S. nonfarm payrolls data for any confirmation that economic recovery is underway.

Crude closed higher Wednesday, after a weaker dollar offset the impact of a fresh round of bearish inventory data from the U.S. Energy Information Administration. Prices could strengthen further if economic optimism remains intact, analysts suggested.

"If equity markets continue to improve, and people think tomorrow is going to be better, then presumably there will be more [crude price] upside," Neil Atkinson, senior consultant at KBC Market Services in London said, even though there was "very little fundamental support" for recent rises.

At 1125 GMT, the front-month September Brent contract on London's ICE futures exchange was down 16 cents at $75.35 a barrel.

The front-month September light, sweet, crude contract on the New York Mercantile Exchange was trading 33 cents lower at $71.64 a barrel.

The ICE's gasoil contract for August delivery was up $6.00 at $613.00 a metric ton, while Nymex gasoline for September delivery was up 21 points at 205.33 cents a gallon.

Wednesday's EIA inventory data showed crude stocks continued to rise last week as U.S. refinery utilization remained depressed. Gasoline stocks fell less than expected despite lower runs, although reduced refinery activity contributed to an unexpected drop in distillate stocks. Nonetheless, distillate inventories remain 21% above levels of the same time last year, swollen by a downturn in industrial and economic activity.

Despite indicating that U.S. demand has yet to stage a meaningful recovery, oil prices closed higher after the data Wednesday, largely as other financial markets continued to proffer hopes of economic recovery.

"I'm still not seeing any demand coming from anywhere yet," said Simon Wardell, analyst at Global Insight in London. "This is all about the markets, not the physical desire for crude. We're expecting a correction."

The ECB is due to give its interest rate verdict at 1145 GMT Thursday. The Bank of England left its rates unchanged Thursday, adding that the U.K. recession was deeper than previously thought. In the U.S., meanwhile, weekly jobless claims are due at 1230 GMT.

Those data, as well as Friday's U.S. monthly unemployment report will likely determine crude's next moves, analysts said Thursday, with any mildly positive elements within them likely to keep the crude price on its upwards trajectory.

"For now, and barring a major bearish macro trigger or a return to extremely overbought conditions, it seems that the path of least resistance is higher still," said Edward Meir, analyst at MF Global in New York. "The market does not have the feeling that it wants to go down. Rather, buyers still seem to be stepping up on weakness."

Source: COMMODITIESCONTROL