Eveninf Report-Jul 02.

Highlights of Eco Survey
Capital market showing signs of revival which is visible in the increasing interest and confidence of both the domestic and foreign institutional investors.
To bridge the rural-urban digital divide, the Economic Survey 2008-09 on Thursday suggested the government to do away with annual license fee and other charges on provision of broadband connectivity to the hinterlands.
To avoid the possibility of conflict between monetary and debt management functions of the RBI, the Economic Survey today prescribed setting up of an independent office to manage the Government debt
Economic Survey calls for multi-format retailing-Survey has advocated sweeping policy changes like foreign investment in multi-brand retailing and higher foreign stake in insurance companies.
Auto sector turnover crosses Rs 2 lakh cr; employs 10 million
Better fiscal health of states led to 2003-08 growth-Improvement in the fiscal health of particularly the states and the Center led the high growth trajectory of the period FY'04 to FY'08
Zero fiscal deficit target; suggests Eco Survey with riders-government should assess the possibility of having a new target of entirely eliminating fiscal deficit, but with a flexibility that it could be widened at a time of economic downturn
Economic survey calls for Factories Act amendment
$500 bn infrastructure spending difficult:
India needs to fully open its retail market to foreign investors in order to drive economic growth, although the subject was strictly taboo till last year because of pressure from the government's allies and livelihood concerns.
Market updates
The Rupee weakened slightly and closed at 47.95 after local stocks fell but the government's Economic Survey raised expectations of more capital inflows, checking the falls. The dollar has been supported despite a report that China will allow companies to undertake settlement of cross-border trade in the yuan and offer them tax breaks, seeking to reduce the reliance of importers and exporters on the U.S. Dollar. The 4th of July holiday has set up an unusual economic calendar where we have the Non-farm Payroll release on a Thursday. Economists are forecasting that the economy lost another 365,000 jobs in June which would be 20,000 more than the month prior which could spark risk aversion and dollar support. However, following six months of losses above 500,000 consecutive periods below the lofty number could be an encouraging sign for traders. Initial jobless claims will also add some insight to the labor market and another week above 600,000 will help dim the outlook for a recovery. Euro has steadily traded lower reaching below 1.4090 ahead of the ECB rate decision but has started to consolidate despite the Euro-Zone unemployment rising to a decade high of 9.5% in May. Early forecasts were for a rise to 9.4% as companies continue to shed workers as they try and cut costs to survive the current recession. Meanwhile, producer prices dropped to a record low -5.8% in May from -4.6% on a yearly basis. The month saw prices unexpectedly fall 0.2% versus expectations of a 0.1% gain, as costs of intermediate goods dropped 0.3%.The inflation report will give the ECB food for thought at today’s policy meeting but shouldn’t impact their rate decision with their consistent contention that deflation isn’t a concern. The central bank is expected to keep rates on hold at a record low 1.00% which they have maintained is appropriate given the current environment. The committee will most likely stick to their measured approach and look to assess the impact of their covered bond purchase program before taking further action. The question is whether they have put in a floor on interest rates or is the door open for further easing. Therefore, we may see limited price action until President Trichet gives his statement and answers to questions from the press. Pound has traded heavy and saw losses slowed after a BoE report showed credit to households increased. The central bank’s quarterly report on credit conditions showed the supply of secured credit to households had increased but that unsecured credit was less available. Lenders also reported an increase in credit to the corporate sector which will help aide an economic recovery. However, new MPC member David Miles said that the banking sector is on life support and return of growth isn't a probable outcome, despite slight improvement in housing. Also, the PMI construction report unexpectedly showed a decline in the sector to 44.5 from 45.9. The dimming prospects for a robust recovery may continue to weigh in the pound . Yen strengthened and was seen at 96.62 levels as stocks around the world declined before a report likely to show the U.S. unemployment rate rose to a 26-year high spurring demand for the currencies as a refuge.