Nifty Moved Up In Last Hour Buying After Initial Weakness Amid "Hawkish & Confusing" Fed

Nifty Fut (Sep) today closed around 8659 (+0.39%), just below day high of 8670 after making a session low at 8578 in the opening session.

Technically, now NF has to sustain over 8665-8695* zone for further rally towards 8725-8765/85*-8825 and 8875*-8925-8975 area in the immediate to short term.

On the flip side, sustaining below 8645*-8610 area, NF may again fall towards 8560/40*-8470-8390 and 8310-8250*-8130 zone in the immediate to short term.

Bottom line: NF is consolidating in a narrow triangle range of 8560-8765 and any sustainable break up or break down from this zone may cause around 250 point movement on either side. In the absence of any meaningful triggers (underlying news-flow), market is basically being driven by huge liquidity flow on the back of yield chasing investors amid a world of negative bond yields.

Today early morning Asian session was tepid except some rally (+2%) in Nikkei (Japan) after Kuroda jawboned about more NRIP in Jackson Hole yesterday. This cause a "rally" in USDJPY and subsequently Nikkei jumped on weaker Yen, which is helpful for Japan as an net export country. But later, the rally in USDJPY nosedived after reports that instead of "Helicopter Money", Japan may be considering some structural infra spending like in railways.

Friday's much hyped Yellen's statement was basically "A whole lot of nothing", although Fed basically scripted about a "dovish hike" in Dec'16 with lots of caveats (like incoming NFP numbers, CPI and other US economic data & global headwinds-China/Brexit), a lots will depend upon the actual outcome of the Nov US Presidential election. 

Actually, it appears that rather than "data dependent", Fed is more "S&P-500 dependent".

A Trump presidency (low probability) will prevent Fed of any Dec rate hike as it will cause more market turmoil (Trump win is viewing as negative for risk assets) and vice-versa.

But, more than Yellen, Fed VC Fischer has spoiled the "bull party" on Friday by saying that statement of Yellen is quite consistent with Sep rate hike (??) and by Dec'16, we should have two US rate hikes !!

Among all these Fed confusions (drama/verbal intervention), FFR is indicating now around 40% & 60% rate hike probability in Sep and Dec'16; but unless & until FFR is 75%, Fed will never act without telegraphing the market well in advance.

Thus, by Sep-Dec'16, we may see some extreme volatility in the market because of US factor alone (presidential election outcome & Fed rate hike probability) and it may be a catch-22 situation for Fed as well.

To regain the lost credibility & its own Dec'15 dot-plots, which guided four rate hikes in 2016 (??), Fed may opt for at least one rate hike (0.25%) in 2016, provided Clinton wins the next US election. In this way, Fed may also ensure that its not behind the curve and can also answer the growing criticism from different quarters & this will also help it to show confidence on US & Global economy as well as on its own forecast. 

After all, its very important to show confidence on the underlying strength of an economy, going into election mode.

All eyes will be on the Aug NFP data in US to be released on 2-nd Sep, in order to ascertain the underlying strength of the US economy & probability of Fed rate hike in Sep or Dec'16. A "good" NFP data may be bad for "risk assets" and vice-versa this time; but with the imminent election month, NFP data should not be too "ugly also.

Back to home, Indian market was today somehow supported by the reports that Govt is advancing the forthcoming Winter session of Parliament by two weeks for "smooth" passage of final GST bill and presentation of FY-18 budget.

Although, there are several issues like final GST rate finalization and some other regulatory concerns (like state wise registration or single central registration for all India based companies), market is assuming that GST will be implemented in reality from April'17 with 18% standard rate. Any significant deviation from that or in-ordinate delay in roll out may cause severe volatility in future.

Indian bonds today fall to some extent as a fall out of Fed hike concern. As bond yields are recovering globally after hitting rock bottom/negative, fund flows can return to safety of bonds from equity in a significant way and we may see more volatility in the market.

Today Nifty was supported by ZEEL (talk of its sports channel sale to Sony), Tata Motors (better JLR volume & improved domestic business, despite bad sets of Q1 numbers), RIL (imminent launch of R-JIO), Adani Ports (Australian court relief).

Nifty dragged today to some extent by HCLTECH, Wipro, Infratel, Bharti Airtel (reduction of data charge by up to 80% as competition heats up due to imminent R-JIO launch) & cement packs.

 NIFTY-FUT