Market Wrap: 15/03/2017
(18:00)
NSE-NF: 9105 (+2
points; +0.02%)
NSE-BNF: 21215 (+68
points; +0.32%)
Time & Price action suggests that,
Nifty Fut (March) has to sustain over 9155 area for further rally towards 9195-9235
& 9275-9350 in the short term (under bullish case scenario).
On the other side, sustaining below 9135
zone, NF may fall towards 9075-9035 & 8985-8950/15 and 8865-8790 area in
the short term (under bear case scenario).
Similarly, BNF (LTP: 21215) has to
sustain over 21350 area for further rally towards 21500-21675 & 21855-22050
area in the near term (under bullish case scenario).
On the other side, sustaining below
21300 area, BNF may fall towards 21080-20980/900 & 20815-20635 zone in the
near term (under bear case scenario).
Nifty
Fut (March) today closed around 9105, almost flat after making a session high
of 9130 and low of 9101 in an extremely range bound day of trading in absence
of any major trigger ahead of Fed today & BOJ/SNB tomorrow with an outcome
of Dutch election. Domestic market basically consolidated today after big move
of yesterday following better than expected margin of win for BJP in the state
elections, especially in UP.
As
probable Fed hike by 0.25% is almost discounted by the market, focus will be on
Fed’s statement/dot-plots and Yellen’s Q&A/Presser to gauze Fed’s appetite
for further rate hikes in 2017; will it be 3 or 4 times and gradual unwinding
of Fed’s huge balance sheet of around $4.5 tln in 2017 ?
EM
& Indian market has not reacted too much for a high probable Fed rate hike
in March, if Fed indeed hikes today with a hawkish bias for multiple rate hikes
in 2017 (almost every quarter end totaling 4 or 3 hikes), then it will be the 1st
time after 2008 economic crisis, Fed is hiking on two consecutive quarters, last
being on Dec’16. Recent Fed hike history suggests that after the hike, global
& EM/Indian market has corrected significantly, be it only for a stronger
USD/US bond yields or along with some other reasons (China jitters/Yuan
devaluation & capitulation in oil after Dec’15 and ‘Trumpism” after Dec’16).
Thus, a “hawkish hike” by Fed today may not be good for EM & Indian market.
Again,
considering only economics and recent US economic data, Fed is bound to hike
today and also 2-3 times more in 2017 to take the Fed fund rate from present
0.75% to 1.50-1.75% by Dec’17; otherwise Fed may fall behind the inflation
curve and the situation may be out of control later.
But
in reality, Fed may not act as par pure text book economics and may be driven
more by politics & reality of USD strength; otherwise Fed should have hiked
multiple times in 2015-16 itself rather than a symbolic one 0.25% hike in a
year.
As
now, it seems that Yellen’s political boss Trump is himself against a stronger
USD contrary to his earlier election rhetoric; Fed may not hike today and will
only talk about rate hike probability for the next quarter (June’17) with a
hawkish script. For this, Yellen may take the excuse of a tepid wage growth and
uncertainty about “Trumponomics” (actual trajectory of fiscal/infra spending
& tax cuts).
Ultimately,
a stronger USD because of perception of Trump’s huge fiscal spending plan and
monetary policy divergence between Fed & other G-10/20 central bankers may
not be good for US economy and corporate profits itself and if Fed goes on for
multiple rate hikes in 2017-18 (6-8 times), then it will make USD/US bond
yields more strong and in that scenario, both US as well as global economy may
suffer a jolt. But, again after so much hawkish scripts for the last few weeks,
if Fed do not hike today, then there will be severe lack of credibility on the
part of Fed and USD may be also doomed, creating a “risk off” trade around the
global financial market.
US
most probably will try to arrive at some co-ordination with other
countries/economic block like Japan (BOJ) and EU (ECB) in the G-20 meet
tomorrow, whereby BOJ/ECB may also respond appropriately to the Fed’s hawkish
stance and turned themselves hawkish from the present dovish/accommodative/neutral
stance. ECB is already talking about rate hike in 2017 before QE ends in Dec’17;
BOJ may also leave the door open for some types of tapering and in that
scenario, Fed should have no problem in multiple hikes; otherwise expect only
1-2 hikes in 2017 by Fed.
Today
US reported:
Headline
CPI for Fed (YOY): 2.7% (estimate of 2.7%; prior 2.5%)
Core
CPI for Feb (YOY): 2.2% (estimate 2.2%; prior 2.3%)
Core
retail sales for Feb (MOM): 0.2% (estimate 0.2%; prior 1.2%-Revised)
At
0.75% Fed rate, the real rate of interest (RRI) in USA may be negative at (-) 1.95%
(0.75-2.7) contrary to the positive Indian RRI of (+) 2.6% (6.25-3.65).
At
present, INR & USD bond yield (10Y) differential is around 4.286% (6.868-2.580);
if Fed goes for multiple rate hikes in 2017, US 10YTSY bond yield may break
2.65% barrier easily and further rally towards 3-3.25% and in that scenario, to
keep the USDINR bond yield differential at present level, RBI has to also hike
in 2017 by at least 1-2 times; otherwise FPIS may exit Indian bond market,
which is very important for the Govt to fund its fiscal deficit. India may be
one the rarest safe country in the world now; having stable macro economy &
political stability is offering so much high yields for its debts (bonds) and
thus together with its high EQ market returns, it’s a favourite destination of
FPIS.
Irrespective
of any Fed hike or no hike today, it may be safe to assume that “easy money”
policy by the major central bankers or four pillars of the global economy
(Fed/BOJ/ECB/PBOC) may be very close to an end until the global economy faces
another recession cycle as in 2008. We may see some types of tapering; multiple
rate hikes and even balance sheet squeezing by these major central banks in
order to prepare themselves for another probable cycle of global recession in
future. EM as well as Indian market may also be affected more or less due to these
central banks tightening either directly or indirectly.
Indian
rupee got significant strength after NAMO’s emphatic win in UP election on the
hopes of more reforms and political stability. Also, FPIS related demands for INR
may be responsible for the recent strength and RBI has to intervene in the
market by giving buying support for the USD.
Technically, USDINR-I
(LTP: 65.81) has to sustain below 65.45 for further fall towards 65.10-64.75
& 64.55; otherwise it may bounce back towards 67 area again. Actual Fed action & subsequent commentary
may be the trigger for tomorrow/next few days.
Apart
from Fed, domestically all eyes may be on tomorrow’s GST meet to see its final
shape & the probability of its actual implementation from July-Sep’17.
Apart from GST/tax reform, Govt has to also deliver reforms in the land &
labour, multi-brand retail, judiciary etc along with an effective resolution of
huge banking NPL & tepid private investments. The list is long and the
market expectations for some big bang reforms are skyrocketing after BJP’s
massive win in UP as there are virtually no political oppositions now and
almost 65% of Indian states are now under BJP, either directly or indirectly.
BNF
USDINR
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