Indian Market
Wrap: 13/07/2017 (17:00)
NSE-NF
(July): 9885 (+63; +0.64%) (TTM PE: 25.04; Near 2 SD of 25; Avg PE: 18; TTM
EPS: 395; NS: 9892)
NSE-BNF
(July): 23866 (+145; +0.61%) (TTM PE: 30.05; Near 3 SD of 30; Avg PE: 20 TTM
EPS: 795; BNS: 23889)
For
14/07/2017:
Key
support for NF: 9855-9790
Key
resistance for NF: 9930-9975
Key support for BNF: 23900-23750
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
23950-23900 area, BNF may fall towards 23750-23650 & 23450-23300 area in
the near term (under bear case scenario).
Nifty
Fut (July)/India-50 today closed around 9885, almost 0.64% up after making an
opening session low of 9857 and late day high of 9893 and thus it closed at a
record closing high for the fourth consecutive session on the back of forced
short coverings in P-Notes FNO coupled with hopes of a RBI rate cut, Q1 earning
optimism, good monsoon, smooth roll out of GST so far and an apparent dovish
Fed coupled with strong DII inflows; really bulls are on the rampage.
Indian
market today opened around around 9872, almost 43 points gap up
tracking upbeat global cues. Almost all the Asian markets were in
deep to moderate green around 2 years high cheering a “Dovish Fed”, advocating
for a gradual pace of future rate hikes amid concern of soft US inflation;
overall global cues are upbeat as investors
celebrate a dovish or rather than a less hawkish Fed (Yellen) and subsequent
fall in global bond yields.
Overnight US market
(DJ-30/US-30) rallied by almost 0.57% on Midas touch of Yellen as it appears a
goldilocks situation for equity in the backdrop of a higher US growth &
lower rates!!
Although, Yellen may
be sounded less hawkish in her testimony yesterday, on closer scrutiny she has
said nothing new, which market does not know already except some dovish outlook
on the US inflation; i.e. Yellen suddenly appeared as an “inflation dove”
contrary to her earlier stance as an “inflation hawk/owl” terming the subdued
US CPI as pure transitory and lower prescription drug & mobile plan charges
are primarily responsible for the tepid US inflation.
As par Yellen, the
above two line items may be replaced in calculating US CPI basket in the next
revision and after that there should be a fair assessment of US inflation.
Overall, it seems that Fed is going for gradual QE tapering from Sep’17 onwards
for its holding of nearly $3.5 tln QE bonds out of total B/S size of $4.5 tln
and depending upon the outcome of it on the overall US economy & market in
next 6-12 months, Fed may either increase or decrease the pace of QE tapering
and by 2022, it may complete the overall B/S normalization process.
Regarding further rate
hikes in 2017, Fed may closely follow the trajectory of US inflation and if
it’s satisfactory, Fed may go for another hike in Dec’17 or otherwise it may
defer it to 2018; in that sense, tomorrow’s US CPI may be vital to assess Fed’s
QT path going ahead.
Previously, Fed was
supposed to hike US rate to around 3% by 2019 assuming US CPI will hit 2% by
then leaving the US RRI (real rate of interest) around 1%. Now it seems that
Fed is going to change that perception as it may be difficult for US CPI to
sustain consistently above 2% in the days ahead. But, QE unwinding itself may
pose major threat to the risk-on trade in the days ahead.
Indian market may now
focus on RBI rate cut after yesterday’s lower CPI for June @1.54%; but that may
be more of a favourable base effect and sudden fall in food inflation and may
also be at the lower end of the CPI trajectory and may again shoot up in the
months ahead because of GST implementation & 7-CPC HRA (arrears); core CPI
came at 3.8% which was previously hovering around 4.5-5% and was quite sticky
as par RBI.
Again, considering the
overall stance of global central Banks looking for QT and domestic factor of
limited transmissions & higher small savings interest rates & India’s
attraction of higher bond yields, RBI may not oblige to cut in Aug or at best
it may be an one off cut for 2017 (hawkish cut) unless other parameters are
resolved.
In India, RRI is
historically very high and it may be also due to the factor of high small
savings rate, which can’t be cut drastically as it involves public mood
(politics) and the nation lacks basic social security system as in the developed
country. But legacy of exorbitant RRI may be also responsible for today’s
Banking NPA mess.
India is at the
opposite end of inflation curve in comparison to the DM or even some other EM
(s), while all the other nations are fighting disinflation and are quite
struggling to stimulate the economy, India is still fighting the inflation.
For any meaningful
monetary stimulus, RBI need to cut deeper around 4-3% to help the Indian
business in order to stay competitive with the DM & rest of the EM; but
that is nearly impossible despite headline CPI is around 1.50%; as par text
book economics, repo rate should be around 3% by RBI, considering RRI/neutral
rate of 1.5%. Also, a drastic cut by RBI may invite Indian bond market carnage
and Govt’s capex plan may be in problem.
Apart from RBI rate
cut, Indian market may now also focus on the ongoing Q1FY18 earning season;
despite so many green shoots, overall EPS trajectory for the Indian market
(Nifty & Bank Nifty) may be still very tepid. As of now, Nifty is being
supported by rate sensitive scrips for RBI rate cut hopes, FMCG and Telecoms.
Looking ahead, Nifty
Fut (July) now need to sustain above 9930 area for
further rally towards 9975-10050 & 10100-10195 zone; otherwise it may fall
and sustaining below 9910-9855 area, may further fall towards 9790-9715 area in
the short term. Ongoing LOC tension with China & Pak may turn serious in
the days ahead and Q1 earnings may be subdued this time due to various factors
and overall valuations may be now quite stretched at around 25 P/E now. TCS
report card just out now after market hours may be very subdued and also below
estimate at a glance.
Asian-Pacific market
update:
Globally, all eyes may be on the ECB now as it’s talking about
QT and also on the 2nd day of Yellen’s testimony apart from US PPI
& CPI as inflation trajectory is now Fed’s main concern (uncertainty in the
path of rate hikes).
Today Nifty was primarily supported
by FMCG (ITC-optimistic outlook despite some cut in cigarette rates), Banks
(Yes/ICICI/Axis/HDFC duo for rate cut hopes); almost 90% of the Nifty components
were in green.
Nifty was dragged by ONGC (Govt’s merger
& disinvestment fiasco with HPCL/IOC), Tata Motors, M&M, Eicher Motors
and Asian Paint.
Elsewhere, Australia (ASX-200) was
closed around 5738, almost up by 1.10% on the strength of Banks & Financials
despite strength in AUDUSD; a very slow pace of QT may be good for overall Banking
sector as easy money may be still available in plenty.
Japan (Nikkei-225) was closed almost
flat at around 20101 (+0.02%) on strength of Yen as USDJPY slumped after dovish
scripts from Yellen; but shares of construction machinery and automobiles have
supported the market today.
China (SSE) closed around 3210,
almost 0.40% in positive supported by Banks & Financials after PBOC
injected today 360 bln Yuan through MLF after many weeks, which may have eased
the concern of tight interbank liquidity situation ahead of corporate tax
payment days.
Also, today’s upbeat China trade
balance data (June) may have boosted the risk-on sentiment which came as $42.7
bln against estimate of 42.44 (prior: 40.81); on YOY basis, export grew by
11.3% against estimate of 8.7% (prior: 8.7%); similarly imports also jumped by
17.2% against estimate of 13.1% (prior: 14.8%).
Hong Kong (HKG-33) closed higher at
around 26315 (+0.90%) and basically driving the Asian risk-on sentiment.
South Korea (Kospi) was also up by
around 1% after its Central Bank hold its policy rate at 1.25% as expected with
some cautious tone due to various global factors such as NK geo-political
issues, trade protectionism stance from US & China (due to deployment of
THHAD missiles) and concern for a quicken pace of US rate normalization. But, it
has also indicated no change in its neutral policy stance despite improved
domestic growth outlook.
Oil was trading in slight red around
45.45 (-0.11%) on surge in production of Crude in the recent weeks despite
surprised drawdown reports from API & EIA yesterday; also cautious tone
from OPEC about rebalancing of demand & supply may be affecting the
sentiment of Oil bulls today. But reports of better China demand may be also
supporting the sentiment to some extent.
EU
market update:
European market is now trading almost flat in mild red,
reversing completely from the earlier Yellen boost after a WSJ report indicate
that Draghi may appear in the forthcoming Jackson Hall meet in Aug’17 to signal
the QE tapering in 2018; incidentally, in 2014, Draghi used this platform to
signal the QE and ECB will meet in Sep’17. Draghi’s proposed Jackson Hall
speech may be intended to give further signal about ECB’s growing confidence on
the EZ economy and less dependence of the QQE.
Thus Jackson Hall meet in Aug’17 will be very interesting as Fed
(Yellen/Fischer), ECB (Draghi) and even BOJ (Kuroda) may signal some types of
co-ordinated QT.
Apart from the support of dovish Yellen and subsequent fall in
global bond yields earlier, EU market was also being supported by metals (rally
in commodity currencies) and consumption stocks; but was dragged by energy
& automobiles to some extent.
FTSE is now trading around 7415, almost flat (-0.04%) amid strength
in GBP; DAX is also almost flat at around 12635 (+0.09%) tracking in line but
flat CPI at 0.2% for June (MOM).
US market update:
USD Is Getting A Bid As Yellen Sounds
Hawkish At The 2nd Day Of Testimony; Mixed PPI Data Also Supporting
The Dollar Today
USD
is getting stronger across the board and USJPY also recovered from the day low
of 112.86 and now trading in positive around 113.40 (+0.03%) tracking mixed US
PPI data and ongoing 2nd day of testimony by Yellen.
Today’s
US PPI (June) came upbeat as 0.1% against estimate of -0.1% (prior: 0.0%); but
core PPI flashed bit disappointed as 0.1% against estimate of 0.2% (prior:
0.3%) on MOM basis.
On
YOY basis, headline PPI came as 2% for June against estimate of 1.9% (prior:
2.4%); core PPI flashed as 1.9% against estimate of 2% (prior: 2.1%).
US
initial Jobless claims flashed as 247k against estimate of 245k (prior:
250K-R).
Overall,
today’s US PPI data may be termed as mixed and all eyes will be on tomorrow’s
CPI to assess Yellen’s expressed concern yesterday at her 1st
testimony.
But
unlike yesterday, USD is getting some support today as Yellen is continuing her
Q&A in the 2nd day of Humphrey Hawkins testimony and the
comments so far:
·
3% GDP Growth In Next 2-Years Would Be
‘Difficult’
·
Significantly Stronger Q2 Growth Expected
From Q1
·
Dollar depressed import prices but that's no
longer a factor
·
Reasonable level the expansion will continue
·
Agrees Systematic Risk Remains In Housing,
Suggests Reform Move Forward
·
Can Never Be Confident There Won’t Be
Another Financial Crisis
·
Wouldn’t Favour Reducing Capital For Most
Systemic Banks
·
Import Prices Are Rising At A Modest Rate
·
Premature
To Conclude Inflation Trend Below 2%
·
Sees
Inflation Risk As Two Sided
·
Fiscal Policy Uncertainty Is Currently Quite
High
·
Expects
Rise In Long-Term Market Rates During Run-Off
·
Household Debt Not Flashing Red On Financial
Stability
·
Appropriate’ Tax Reforms May Help
Productivity
Overall,
today’s comments by Yellen may not be termed as dovish as it appeared yesterday
and Fed is expecting a rise in long term market rates (10YUSD bond yield)
during the time of “run-off” (QE tapering) and thus, even if it holds for a few
months, it may not matter much as real cost of US economy will rise; subsequently
USD bulls may be getting some boost. Also, Yellen’s comments about nature of US
inflation may be supporting the USD today.
Apart
from that, buzz of QE tapering signal by ECB Draghi at the Aug Jackson Hall
meet may be also an indication of a co-ordinated QT move by ECB & Fed and
that may be also boosting the USD prospect. Also, talk of an imminent passage
of a modified US health care bill may be also boosting the USD; but ongoing US
political jitters regarding Trump’s alleged Russian connection may be also a
major risk for the currency (USD) and the overall risk-on trade right now.
SGX-NF
BNF
USDJPY
https://www.iforex.in/news/nifty-scaled-another-record-high-tests-9900-tracking-positive-global-cues-amid-dovish-fed-upbeat-china-trade-data-hopes-aug-rate-cut-38633
https://www.iforex.in/news/usd-plunged-after-%E2%80%9Cnot-so-hawkish%E2%80%9D-yellen-38603
https://www.iforex.in/news/usd-getting-bid-yellen-sounds-hawkish-2nd-day-testimony-38641
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