Nifty Consolidates With Positive Bias Amid Hopes Of Oct Rate Cut And Confusions Of The Central Bankers

Nifty Fut (Sep) today closed around 8778 (+0.41%) at almost the day high (8780) after making a session low of 8717 amid very range bound trade at the index level.

Looking ahead, NF has to sustain above 8785-8825* zone for target of 8875*-8910-8975 & 9025-9075*-9125 in the immediate to short term.

On the other side, sustaining below 8745-8705* area, NF may fall towards 8660*-8615-8560/40 & 8480*-8425-8365 zone in the immediate to short term.

On Monday, US mkt recovered smartly on the back of Brainard's dovish stance as mkt was somehow apprehending about hawkish talk from her.

But, overnight US mkt was again plummeted yesterday as there is strong mkt talk that going forward BOJ may take a hawkish path to steepen the Japanese bond yields and may also announce some types of tapering in its current bond buying program. 

In essence, mkt suddenly realizing that all the major central banks are now talking hawkish and not interested to unleash any major QQE. So, there is a theme of "sell everything" currently prevailing in the global mkt.

Thus, more than Fed, BOJ may pose more risks for the global mkt and Sep-21/22 is vital for the BOJ stance, rather than Fed as it's almost certain now, Fed will not act this month, just before US election, whatever may be the incoming data and stance of different Fed members.

There is also some rumour that Clinton may withdraw from the US election due to her health problem. Also, recently, probability of "Trumpism" is going higher for various reasons and that is also being dubbed as negative for risk assets.

Oil was also under pressure after IEA cut global demand yesterday amid weakening Asian demand (India & China) and warned about continuous supply glut in the months ahead.

But, in the late US trading yesterday, there was also some report that BOJ may also go deep into the negative rates in its Sep policy review in an apparent reaction to the ongoing market turmoil. BOJ may debate deepening into negative rates and Kuroda is thinking about cut rate to -0.2%. This latest BOJ buzz of 3-D QQE (Quantity, Quality & Rate cuts) was able to give some late support to the global risk assets today. 

After printing trillion of dollars, it appears that central bankers are now increasingly out of ammunition/idea and they are now calling for some fiscal measures along with structural reforms by the Govt as benefit of QQE is not reaching the "real street".

The Indian market today got some support from the sudden drop in Aug CPI announced on Friday after market hours. With Aug CPI was at 5.05% (against estimate of 5.15% and prior July at 6.07%) and together with the tepid Aug IIP (-2.4%), it raised the Oct rate cut hope by the RBI.

During market hours, Aug WPI released today at 3.74% (consensus 4.01%; prior: 3.55%), which is at multiyear high. The apparent divergence or the sharp contrast between the CPI (fall by almost 1% MOM) & WPI (increased by 0.20% MOM) may also raised some doubts about the veracity of the CPI data & lower inflation trajectory in the coming months.

Thus being an inflation hawk, new RBI Gov may choose to wait for more incoming data about price stability (inflation) in the months ahead and may not cut in Oct policy meet, depending upon one month's sudden drop in the CPI. 

RBI may now prefer to give more thrust on the full transmission of previous rate cuts and actual resolution of the stressed assets of the Indian banking system, specially for the PSBS and depending upon the H2 inflation trajectory & Fed stance after Nov US election, RBI may cut by 0.25% in Dec'16. 

Already, as par some reports, banks has made a proposal to the new RBI Gov about modification in the present CDR rule for the "stressed" steel sectors.

After all, if banks are unable to fully transmit the RBI rate cuts to its borrowers, then what's the use of repo rate cuts ?

There was also some report that till now overall monsoon is around 4% below LPA against the earlier projection of 6% above or at par LPA. As par the IMD, monsoon will recede this year within a few days and in that scenario, this may affect the rural sentiment in some parts of our country having deficient rain, although the overall sowing activity has jumped significantly this year.

But, with festival season has started, the expected uptick in consumer spending may support the Indian market sentiment by some extent also.

Overall, technically unless & until NF sustained over 8825-8875 zone for a few days on a closing basis, any rally may be proved as "dead cat bounce" for the time being.

SGX-NIFTY