Nifty Sold Off From High And Closed Flat As Global Market Not Impressed By BOJ's New Yield Targeting Stance Ahead Of Fed Day

Nifty Fut (Sep) today closed around 8807 (absolute flat) after initial BOJ inspired rally up to 8857 and late day selling low of 8785.

Technically for tomorrow (21/09/2016), sustaining below 8780* area, NF may fall towards 8735/05-8665/45*-8570/40 zone immediately.

On the other side, sustaining above 8825* area, NF may again rally up to 8875*-8905/25-8975/95 zone for the day.

Soon after Indian market opened today, BOJ unleash their much speculated "Bazooka", but at the end it eventually turns out to be a "water pistol" as USDJPY not even rallied by 100 pips and gradually returned to the Pre-BOJ level of around 102.

Some section of the market was expecting that BOJ may cut deposit rate to further negative (-)0.2% from the present (-)0.1% along with some tweaking in JGB buying in order to steepen the yield curve and stimulate the Japanese economy and combat deflation.

But, BOJ only took the yield targeting measure leaving the deposit rate unchanged. Now, BOJ may target 10Y JGB bond yields by unlimited amount to keep it above 0% and gradually shifting from the present bond buying.

The present focus on yield targeting in lieu of NIRP may be an indication that BOJ's past policy is not working to spur business lending as banks & financial institutions are themselves suffering from the negative JGB yields and not in a position to lend excessively.

By today's policy, BOJ may be trying to support the bank's NIM (as Japanese banks usually borrow in the short bond end and lend in the long end) and rectifying its past mistakes of NIRP, which pushed the 10Y JGB bond below 0% into negative territory (still its now around -0.025% after making an BOJ inspired rally up to 0.005%).

Although, BOJ makes it clear about its intention for positive 10Y JGB bond yield, market is not so much impressed and in some types of confusion about BOJ's ability to actually do that, because in the global era of currency war, BOJ is not alone; other central bank's policy is equally important.

Today's Fed stance/forward guidance may help to clear this doubt as its almost certain that Fed will not move/hike today at any cost just months before US election. 

The market will focus on the forward guidance of Fed. Any clear indication by Fed that it will raise rate on Dec may help BOJ to some extent. But considering the various aspects like probabilities of "Trumpism", "Real Brexit" and EU/China banking crisis, Yellen may take a "hawkish hold" stance tonight with lots of caveats with no clear cut commitments about a definitive rate hike in Dec'16 also. That should cause some rally in USDJPY.

As of now USDJPY and positive bond yields are both directly divergent to risk assets by some extent. 

Back to Indian market, in the absence of any meaningful cues Nifty may be also dancing to the global tunes of Fed & BOJ. 

After this "week of central banks", Indian market may focus on RBI meet, ongoing progress of GST & early FY-18 general budget preparations, Q2F1Y17 result season, incremental economic/structural reforms by the Govt, Indo-Pak geo-political tension and trend of consumer spending in the forthcoming festival season.

Today Govt announced the much anticipated merger of general & RLY budget and the same will be likely presented on 1-st Feb'2017. Thus budget preparation will soon start after Sep-Oct this year and in that scenario, nationwide roll out of GST from April'17 may be quite challenging too.

Overall, as there are lots of confusion because of Fed uncertainty about forward guidance, we should follow technicals more as mentioned above for the Nifty Fut levels for an overall direction of the market.

SGX-NIFTY