Nifty
closed the eventful week almost 2% higher marked by P-Notes FNO forced short
covering and an apparent dovish Fed; what’s next?
Market Wrap: 14/07/2017 (17:00)
NSE-NF (July): 9903 (+16; +0.16%) (TTM PE: 25.03;
Near 2 SD of 25; Avg PE: 18; TTM EPS: 395; NS: 9886)
NSE-BNF (July): 23970 (+91; +0.38%) (TTM PE: 30.11;
Near 3 SD of 30; Avg PE: 20 TTM EPS: 795; BNS: 23938)
For 17/07/2017:
Key support for NF: 9855-9790
Key resistance for NF: 9930-9975
Key support for BNF: 23950-23750
Key resistance for BNF: 24000-24115
Time & Price action suggests that, NF has to sustain over
9930 area for further rally towards 9975-10050 & 10100-10195 in the short
term (under bullish case scenario).
On the flip side, sustaining below 9910 area, NF may fall towards
9855-9790 & 9715-9670 area in the short term (under bear case scenario).
Similarly,
BNF has to sustain over 24000 area for further rally towards 24115-24250 &
24250-24450 area in the near term (under bullish case scenario).
On the
flip side, sustaining below 23950 area, BNF may fall towards 23750-23600 &
23500-23300 area in the near term (under bear case scenario).
Nifty Fut (July) today closed around 9903, almost
flat (+0.15%) after making an opening minutes high of around 9907 and day low
of 9858.Indian market today opened around 9907, almost 22 points up tracking
mixed global cues and in line with estimate but surprise in guidance report
card from Infy. But, it could not hold the opening gains as long unwinding soon
kicked on as Nifty conquered the 9900 milestone and valuations are also quite
stretched at Nifty TTM PE around 25.
But the Indian market today also rebounded from
the day low after plunge in WPI, which may again spur the rate cut hopes by the
RBI and it gained more momentum after some reports of Govt extending more sops
to the export sector amid ongoing strength in INR and some report of optimism
over Indian economy, political stability and Govt’s ongoing effort of
incremental reform may have boosted the sentiment, prompting for more forced
P-Note FNO short covering and some value buying.
A recent survey showed that almost 73% of Indian
public trust their Govt, which is highest in the world now; i.e. India may be
the most politically stable democracy as of now.
Also, some report that ECB may not inclined to
specify its QE tapering date may have boosted the EM market sentiment,
including India towards closing session.
Most of the Asian markets were trading almost flat
today tracking subdued global/Asian cues after tepid GDP forecast of China by
Fitch in the morning today. Although, Fitch has affirmed China’s rating at A+
with stable outlook, it has downgraded the GDP to 6.5% in 2017 & 5.9% in
2018, citing tighter monetary conditions. Overall, China is stable due to the strength
of its external fiancés and macroeconomic track record.
Overnight US market (DJ-30) also closed almost flat (+0.10%)
amid mixed PPI data and QT & valuation concern by ECB & Fed.; but
supported by Banks & Financials and also retails (consumption) stocks amid
optimistic sales figures ahead of key earnings today.
As par reports, Draghi may appear in the Aug Jackson Hall meet
and signal the QE tapering of ECB in 2018; thus it may be a co-ordinated QT
move by Fed & ECB and subsequently all the other major G-10 central Banks
including BOJ & BOE may also join; BOC has already hiked by 0.25% day before
yesterday after 2010 and may further hikes in 2017-18.
Also, as par some reports, BOJ may downgrade its inflation
target in its forthcoming meet on 20th July and thus it may also be
preparing for an eventual QT just to follow the Fed to keep the parity between
JPY & USD at present ideal level.
US market yesterday also came under some stress after Yellen
sounded less dovish in her 2nd day of testimony and another
influential Fed member (Brainerd) again commented about stretched valuation of
US equity assets. All eyes now may be on the US CPI report today after mixed
PPI report yesterday as subdued inflation may be the prime concern for Fed now
to hike further in 2017; although it may start the QE tapering from Sep’17
itself.
Back to home, although Indian market (Nifty/India-50) is now
eyeing for the 10k Mt’ Everest, valuations may be already quite stretched and
the Q1FY18 earnings may not help much this time also. There are various
disturbing signs that Indian/Global bull market cycle may be at its peak and
going forward subdued earnings, QT chorus by global central banks and growing
US political jitters (high probability of a Trump impeachment) & poor
visibility of Trumponomics might be some of the triggers for downside.
After yesterday’s tepid earnings from TCS, today’s report card
from INFY may also be termed as subdued or just in line with market
expectations except some surprised upgrade guidance of 1-2%; but Infy could not
hold its initial gain and closed in negative (-0.51%) after fine prints of the
report card shows some red flags despite a an apparent relaxed management.
There was also some unconfirmed report that SEBI may take
pre-cautionary action against the new listings (IPO), which are quite volatile
in nature and keep those stocks in the T2T segment; i.e. compulsory delivery
with no intra speculation. All such scrips today crashed and may have also
affected the overall market sentiment (AU Small Fin, CDSL, HUDCO, Avenue
Supermart, Eris & Tejas).
Meanwhile, India’s WPI inflation for June flashed as 0.90%
against estimate of 1.60% (prior: 2.17%); although this may be an effect of
favourable base effect, the subdued WPI (PPI) may be also indicating some contraction
in economic activity and tepid underlying demand.
In India, a lower CPI is good news as it may provide the central
Bank to cut the high interest rate regime, which may be a legacy issue; but
concern of deflation and lower growth (GDP) may also be looming in.
Looking ahead, Nifty Fut (July) has to sustain over 9930 for
further rally to the 10k Mt’ Everest; otherwise there may be some time &
price correction.
Today Nifty was supported by Pharma, Oil & Gas
but dragged by IT & Auto stocks.
Meanwhile, India’s Trade Balance for flashed as
$12.96 bln against estimate of 12.50 (prior: 13.84 bln) and exports growth
slows in June on MOM basis. Exports grew at 4.4% to $23.56 bln in June on YOY
basis, but the growth slows from May (+8.3% rise). Imports jumped by 19% to
$36.52 bln on account of surge in import in Gold ahead of GST tax increase.
The slower export growth in June may be a result
of strong INR and subdued demand for Indian goods in the international market.
Elsewhere, Australia (ASX-200) closed around 5751,
up by almost 0.20%, but off the day highs, tracking strong AUDUSD and subdued
China GDP forecast by Fitch.
Japan (Nikkei-225) also closed almost flat
(+0.09%) at around 20120 amid some pullback in Yen after mixed US PPI data and some
optimistic tones from Yellen yesterday; USDJPY got some strength yesterday.
China (SSE) was also flat around 3215 (-0.09%) on
subdued GDP forecast by Fitch and on apprehensions of some restructuring about
its financial system. Hong Kong (HKG-233) is also almost flat around 26365.00.
Today commodity currencies (NZD/AUD) are also
gaining strength after BOC hiked after 7 years and amongst the 1st
in the G-10 central Banks apart from Fed; market may be expecting similar rate
hike action from RBA & RBNZ in the months ahead; NZX-50 today rose by around
0.4%. South Korean market (Kospi) today added 0.2% amid record closing highs.
Oil (WTI) is also almost flat around 46.05,
tracking OPEC squabbling and subdued forecast of demand & supply
rebalancing ahead of Baker Hughes Oil Rigs figure later today; of late Oil
bulls may be concerned about increasing crude Oil (US shale) production despite
surprised drawdown.
Technically,
Oil is now required to sustain above 46.55-46.75 zone for next leg of rally
towards 47.30-47.50 & 48.30-50.00 zone; otherwise it may fall again and
sustaining below 45.40-45.00, may further fall towards 43.70-42.00 handle in
the coming days.
Gold on the other hand is now trading around 1218,
almost flat (+0.04%), but off the recent low of 1204.62 after Yellen sounds
less hawkish (dovish) in her 1st testimony. Although Gold is a
victim central Bank jawboning and a high probable QT along with a global
environment of subdued inflation despite unlimited QQE, it’s being supported by
ongoing geo-political jitters and appeal of a safe haven hard asset at time of
crisis. Also, eternal physical demand from India, China & other SE
countries may be supporting the Yellow metal.
In a country like India, with little financial
literacy among the common people, Gold is the most preferred mode of
investments among masses. Also, Gold is being treated here as a “family silver”
and a necessity requirements for marriage & some religious places/functions
and together with that, steady demand from the so called “black money” holders
are also supporting the physical demand from India despite Govt effort of DeMo
to curb the use of Gold.
Looking at
the chart, Gold now need to sustain above 1225-1235 zone for any further
recovery to 1245-1260 area; otherwise, sustaining below 1214, it may again fall
to 1205-1195 & 1175-1160 zone in the coming days amid increasing QT chorus
by global central Banks (Fed/ECB).
Elsewhere, European market is now trading in
slight red as EUR jumped on ECB QE tapering buzz and fall in USD after tepid
CPI & Retail sales report. Also, some adverse report about Trump’s alleged
Russian connection and his knowledge about the meeting between his son &
the Russian lawyer may have dampened the overall risk-on sentiment. Banks &
financials are in pressure after disappointed result from some big banks like
JPM.
FTSE is now trading around 7405 (-0.12%) on
strength in GBP and pressure on Pharma space (Astra).
DAX-30 is now around 12590, down by 0.38% on strength
of EUR; similarly CAC-40 & MIB-40 are also down by 0.36% & 0.55% as of
now.
Meanwhile, GBPUSD
is now blasting around 1.3060, up by almost 0.90% after reports that UK may
admit the demand of Brexit divorce fees of $114 bln, which was a major hurdle for
a meaningful Brexit negotiation along with other issues like EU citizens, EU
Court of Justice jurisdiction and Ireland border. Thus, probability of a smooth
or so called soft Brexit has brightened and GBPUSD is getting strength apart from
the factor of tepid US economic data today (fall in USD across the board).
Also, from the ongoing hawkish tunes from various
BOE/MPC members may be indicating that despite significant UK political &
Brexit uncertainty, BOE may be forced to follow the QT path of Fed/BOC/ECB and
thus GBP is getting more boost.
Looking at
the chart, GBPUSD now has to sustain over 1.30905 for further rally towards
1.3105-1.32850 & 1.34355/845-1.35295; otherwise, sustaining below 1.30525-1.30485,
it may fall again towards 1.29180-1.28310 in the coming days.
SPX-500 Jumped
To 2450 & USDJPY Almost Slumped To 112 After Tepid US Economic Data:
After tepid US economic data today SPX-500
(US-500) rallied to almost 2450 and USDJPY slumped to 112.27 on the perception
that Fed may not hike even in Dec’17; thus combination of higher US growth and
lower rates may help US corporates and equities; i.e. it may be a goldilocks
situation for US stock market right now with dovish Fed.
Today’s US economic data (June):
Core CPI-MOM: 0.1 %( EST: 0.2%; PRIOR: 0.1%)
Core CPI-YOY: 1.7% (EST: 1.7%; PRIOR: 1.7%)
CPI-MOM: 0.0% (EST: 0.1%; PRIOR: -0.1%)
CPI-YOY: 1,6% (EST: 1.7%; PRIOR: 1.9%)
CORE Retail Sales-MOM: -0.2% (EST: 0.2%; PRIOR:
-0.3%)
Retail Sales-MOM: -0.2% (EST: 0.1%; PRIOR:
-0.1%-R)
IIP-MOM: 0.4% (EST: 0.3%; PRIOR: 0.1%)
U-MICH Cons-Sentiment: 93.1 (EST: 95; PRIOR: 95.1)
Overall, on headline basis, US CPI & Retail
sales flashed very subdued and may force Fed to stay on the side line at least
till Dec’17; but closer scrutiny may reveal that wage component (Avg. weekly
& hourly earnings) has increased (+1.1% & +0.8% against prior 0.6%) and
that may give Fed some confidence going forward.
In any way, it’s now very clear that after three
hikes in the last six months or two hikes in 2017 against original projection
of three hikes (dot-plots), Fed may not show any urgency for the 3rd
hike immediately, even if today’s CPI data came blockbuster.
In lieu of rate hike, Fed may now focus on its QE
tapering from Sep’17 and thus it may wait patiently till Dec’17 to watch both
the trajectory of US inflation and the effect of its QE tapering on the US
economy & the market and depending on that it will decide for its next rate
hike either in Dec’17 or in 2018. As of now, market may be expecting total 3
hikes in between Dec’17 to Dec’18.
Looking ahead, a definitive QE tapering plan from
Fed (quantum & time) may give support to the USD; as of now, market may be
assuming $10 bln/pm QE tapering from Sep’17 onwards for the first 6 months with
another rate hike of 0.25% and thereafter tapering may be increased up to $50
bln/pm from Q2CY18, if everything is fine until a reasonable B/S size is
achieved (total QE bond holding may be around $3.5 tln against the overall B/S
size of $4.5 tln).
Looking ahead,
for next leg of rally, SPX-500 may need to sustain above the 2455 area for
2495-2505 zone; otherwise it may come down. For USDJPY, 112.00-111.60/40 area
may be the hopes for the USD bulls now. Ongoing
US political jitters regarding Trump’s Russian connection may take serious turn
in the days ahead and that may be bad for both USD & US/global stock market
(risk assets).
SGX-NF
BNF
SPX-500
GBPUSD
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