Monday, 7 November 2016

Nifty Snapped 5 Day Losing Streak; But Well Off The Highs As Despite FBI Clearance On Clinton, Damage May Already Have Been Done



Market Wrap: 05/11/2016 (17:00)

Nifty Fut (Nov) today closed around 8508 (+0.60% & +51 points) after making a session high of 8560 and opening session low of 8503.

Technically, for tomorrow (08/11/2016), NF has to sustain over 8480 zone; otherwise it may fall towards 8440-8405*-8360 & 8335*-8270-8160 area in the immediate to short term.

On the other side, for any meaningful strength and overall trend reversal, NF has to sustain consistently over 8545 area for further rally towards 8575/8595*-8655-8705 & 8750*-8800-8875 zone in the immediate to short term.
 
Despite opening gap up following positive global cues after FBI cleared Clinton for her e-mail saga in the weekend, just before election day tomorrow, NF failed to sustain over the crucial technical level of 8545 and closed the day well of the high, making a “Doji” (indecisive candle) on the technical chart.

This may be because, despite FBI clearance, US Election outcome uncertainty may not be over yet, as Clinton is now enjoying only 3% lead in the opinion poll over Trump. FBI announced its investigation only last week and its “super efficient” officers has scanned nearly 6500 e-mails in the last 5-7 days for giving clean chit to Clinton may have raised some serious "questions of trust" on the whole process and significant voters may be still undecided as the damage has been already done to the Clinton camp. 

There was also some story of Clinton acknowledged ISIS related funding from Saudi Arabia, when she was the US secretary of state. All these may have been playing in the minds of the voters of “Real Street” and eventually, it may be a close finish between Clinton & Trump or Democrats & Republicans this time. 

Ultimately, Clinton may win (as also being reflected by various polls), because at the end of the day, voters may decide for a “stability” as Clinton is being viewed as a candidate for “status co”, whereas Trump is being portrayed as a symbol for “Change”.

Friday’s US NFP was basically a non-event except some momentary whipsaws and did not affect materially any probability of Dec rate hike by Fed. Although, the headline NFP (161k) was less than market estimate (175k), the revisions of the previous months along with drop in unemployment rate (4.9%) and spike in average hourly earnings (0.4% MOM against estimate of 0.3%) has reinforced the notion that except for any nasty surprise (like “Trumpism”), Fed is well poised for the Dec’16 rate hike and subsequent guidance of 1-2 rate hikes in 2017 as overall US economic data may be well above Fed’s own projection.

But, the market will dance to the tune of US election in the near term as economics and monetary policy has taken the back seat ahead of the ongoing US election drama.

As par various reports, there may be three scenarios of US Election outcome this time, which may be an exceptional geo-political nature, considering that one of the potential candidate (Trump) is an “unknown” political leader with no record of any previous political skills or policies :


1.    Trump becomes next US Prez and Clinton accepts defeat: Expect an immediate “dooms day like scenario” for the global risk assets and SPF & Nifty may correct by 10% in the near term.


2.   Clinton becomes the first female Prez of US; Trump accepts defeat: Expect an immediate rally to the tune of 5% in SPF & Nifty; but may again move lower as Clinton, though viewed as a candidate for “stability & continuity”, she has many problems of her own too. Fed has to hike in Dec’16 as they may have no other caveats by then and geo-political clash with Russia may also escalate because of Syria issues (Clinton being viewed as also a “war mongering” US Prez) and some concern with China may again pop up.

3.   Clinton/Trump becomes Prez by narrow margin (lack of absolute majority in both houses of US congress) with losers refuse to accept defeat: This may be the most likely one post US election saga. In this scenario of divided government, where White House & Senate may be controlled by the Democrats (Clinton) and the House may be the republicans (Trump),  the ongoing uncertainty may prevail and that may also be extremely negative for the market as it does not like “uncertainty”. Risk assets may also be doomed including USD, EQ, Bonds and precious metals (Gold/Silver) may be surged.

Thus, after US election result, global market including India may rally around 5% for few days in the best case scenario of a clear Clinton win and may fall again. 

On the other side both Trump win or a narrow result may cause significant turmoil for the global “risk on” sentiment and we may have 10-5% correction in the short term.

Another point may be that, irrespective of Clinton or Trump, USD may be stronger and in that scenario, “hunt for EM yields” may decrease and Indian market may also correct for FII(s) outflows.

Today, after opening in a strong note, global as well as Indian market did not see any significant “value buying”, may be because of UK’s intention to draft a separate law for an early “Brexit”.

Also, another report that Chinese FX reserve has declined unexpectedly may have also dampened the “risk on” sentiment as this may an indication of Chinese outflow and may also force PBOC for more Yuan devaluation. A Trump win may also devalue “Yuan” just like Mexican “Peso” and other export oriented EM currency because of trade barriers. Indian Rupee may also be affected because Trump is against Indian software service & Pharma exports in US. Even, Clinton win may also prompt for some trade protectionism because of US political & structural reform reality.

Domestically, there were also no fresh drivers of the market, but UBI’s result may also highlight that NPA woes for Indian banks may not be over yet, which also dampened the overall market sentiment along with multiplicity of various GST  rates and dual control confusion. Also Indian political roadmap is now extremely hot as crucial UP & Punjab election is coming and there is no let up in LOC tensions with Pak.

In the absence of any domestic triggers, all attention is now on the US Election drama and its final outcome by this week.




 SGX-NF

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