Market
Wrap: 12/07/2017 (17:00)
NSE-NF
(July): 9829 (+41; +0.42%) (TTM PE: 24.85; Near 2 SD of 25; Avg PE: 18; TTM
EPS: 395; NS: 9816)
NSE-BNF
(July): 23747 (+130; +0.55%) (TTM PE: 29.80; Near 3 SD of 30; Avg PE: 20 TTM
EPS: 795; BNS: 23695)
For
13/07/2017:
Key
support for NF: 9775-9715
Key resistance for NF:
9835-9875
Key support for BNF: 23600-23500
Key resistance for
BNF: 23800-23900
Time & Price action suggests that,
NF has to sustain over 9835 area for further rally towards 9875-9915 &
9975-10050 in the short term (under bullish case scenario).
On the flip side, sustaining below 9815
area, NF may fall towards 9775/9715-9665 & 9600-9560 area in the short term
(under bear case scenario).
Similarly, BNF has to sustain over
23800 area for further rally towards 23900-24000 & 24115-24250 area in the
near term (under bullish case scenario).
On the flip side, sustaining below
23750 area, BNF may fall towards 23600/23500-23400 & 23300-23000 area in
the near term (under bear case scenario).
Nifty
Fut (July) today closed around 9829, almost 0.42% higher after making a session
low of 9786 and late day high of 9830 amid closing session brisk buying or rather
forced short covering (P-Notes FNO) after sudden surge in EU/global markets
boosted by OPEC optimism about Oil.
Indian market today opened around around 9802, almost flat
tracking subdued/mixed global/Asian cues after Trump Jr released a trail of
mails revealing contacts with Russia in the US election affair. As a result,
Trump Jr may have to now testify before US senate and also will be investigated
by US special attorney Muller’s team.
Thus, US political drama is getting serious day-by-day and
eventually “Don Trump” may also be accused as an US Prez backed by Russia or
under Putin’s control and may also be impeached & removed in the worst case
scenario as US citizens/lawmakers may not tolerate such situations. This may be
a onetime black swan event, but may be also positive for the risk assets as an
element of uncertainty & daily caricature (circus) will be removed from US
politics & administration (WH).
As a result, despite USDJPY has plunged, US stock market (DJ-30)
yesterday recovered from the low as investors may be scrambling to buy the
Trump dips and DJ-30 closed almost flat supported by Techs, Oils and Q2 earning
optimism. Also, buzz of passage of Trumpcare bill in the current session of US
House and some progress in the tax reform bill may have supported the US market
yesterday.
Apart from that, market may be also cool to the ongoing
Trump-Russia controversy as none of the materials including yesterday’s e-mail
chains from Trump Jr is sufficient for an impeachment for Trump Sr. As par
reports, NYT was supposed to break the news of this e-mail saga first, but
realizing that it may harm more, Trump Jr suddenly posted the e-mail chains in
his twitter handle before NYT breaking news.; so it may be a forced revelation
and market plunged.
Globally, all eyes will be on Yellen’s testimony today for a
definitive plan for Fed’s QT path, but considering the ongoing US political controversy,
Yellen may not reveal anything new which market does not aware of and she may
choose to keep the ongoing Fed suspense about QE unwinding & further rate
hikes; thus it may be a neutral event for today and may also disappoint the USD
bulls.
As of now, from various US policymakers & Fed speakers, it
seems that Fed is going to start its B/S tapering from Sep’17 and depending
upon the effects of it on market & economy and incoming US economic data
Fed will decide for the Dec’17 hike or not.
Apart from Yellen’s testimony, market may also focus on BOC,
which is slated to hike today (above 90% probability) as a major G-10 central
Bank after 2015 apart from Fed and this may be a signal for major policy
restructuring amid chorus of coordinated QT by the global central Banks in the
coming days including Fed, ECB & BOE. Only a Trump impeachment may now
force the Fed to be in the sideline. A QT may be bad for risk & EM assets
(EQ market).
Tracking subdued global cues, Indian market was also almost flat
most of the days supported by ongoing forced P-Note FNO short covering and oil
& gas and some FMCG counters.
Although, Indian
market is breaking record after record, it’s coming on the back of forced
P-Notes FNO short covering and not on the back of fundamental buying or reasons
and is also not being supported by earnings; TTM PE may be now around 25, which
is quite stretched and in the bubble zone also as par previous trends; yesterday’s Indusind Bank report card may be termed as mixed as
despite decent top & bottom line figure, Bank’s asset quality may be losing
shine. All eyes may be now on the CPI & IIP data later in the day today
amid hopes of a RBI rate cuts in Aug’17.
As of now Indian market is being supported by huge liquidity,
forced FNO short covering, Q1 earning optimism, good monsoon and smooth roll
out of GST (so far).
Looking at the chart, Nifty Fut (July) now need to sustain above
9835 area for further rally towards 9875-9915 & 9975-10050 zone; otherwise
it may correct and sustaining below 9815 area, may further fall towards
9775-9715 & 9665-9600 in the short term.
Today Nifty was supported by RIL (R-Jio optimism) & other
Oil and Gas counters (favourable Crude Oil price) Cement counters (ACC/Ambuja),
Infratel (tower assets deleveraging & better prospects of telecom), HUL
& SBI.
Nifty was dragged by TCS/INFY (concerns of poor report card),
M&M, Auro/Sun Pharma & Hero Motors. On the broader market MFI(s) were
in demand on hopes for further M&A/Consolidation, RBI rate cuts ahead of
CPI data today and reported improvements in loan EMI collections on the back of
good monsoon despite concerns for credit discipline amid farm loan waivers in
various states.
Meanwhile, Indian CPI came as 1.54% for June against estimate of
1.70% (prior: 2.18%) helped by fall in food inflation; IIP for April came as
1.7% (YOY) against estimate of 1.9% (prior: 2.7%). Core CPI may be now hovering
around 3.5-4%; but still sticky.
Overall, RBI may cut 0.25% in Aug, but it may be one off in
CY-2017 (hawkish cut) and going forward RBI/MPC may closely watch effect of
GST, HRA(7-CPC arrears) on core inflation & seasonal factors on food
inflation and may be in a “wait & watch” mode. Apart from these,
transmission factors & high small savings rates and attractive Indian bond
yields may be some of the other reasons for which RBI may also stay “neutral”
in the coming months.
Another point may be also that sudden plunge in inflation may be
also an indication of economic activity contraction and lack of demand after
demonetization.
Anyway, the dual combination of lower headline CPI (at five
years low) along with tepid IIP may put more pressure on RBI to act (cut) in
Aug; but the big question is will RBI oblige, when all the major global central
banks are perusing for a QT path ?
Asia-Pacific market update:
Elsewhere, Australia (ASX-200) was closed around 5676, almost
down by 0.90% on strength of AUDUSD and dragged by Banks. Japan (Nikkei-225) is
trading around 20097, down by almost 0.50% as Yen got strength after epic fall
of USDJPY yesterday amid US/Trump political turmoil.
China (SSE) was closed in negative around 3190 (-0.38%) amid
clampdown on insider trading despite PBOC infused 20 bln Yuan today in the
money market after nearly two weeks as corporate China may face some liquidity
crunch for the forthcoming tax payments.
Hong Kong (KKG-33/HSI) was trading in green around 26030
(+0.50%) supported by earnings optimism of China based banks and is basically
driving the Asia market sentiment including India.
Oil is now trading around 45.90, almost up by 1.78% after a
roller coaster drive yesterday amid OPEC squabbling. After initial plunge to
below $44 handle following reports of Saudi breach of OPEC agreement, Oil got
support from the 43.70 level as OPEC confirmed 97% overall production cut
compliance in June.
Also EIA trims down both US crude production estimate along
with slight downward revision for 2017-18 global oil demand which may be
positive for Oil as it is indicating rebalancing of oil supply & demand by
2018 (faster than market is expecting).
Oil got further boost today after US API report (Private) shows
surprised drawdown in Crude Oil; official (Govt) EIA report may now be closely
watched as there are huge variations from time to time between these two
reports.
Technically, Oil now need to break above 45.95 area for further
rally towards 46.20-46.90 & 47.60-48.35 zone in the short term; immediate
support may be now placed at 45.50 and sustain below that, oil may further fall
towards 45.15-44.70 & 43.70-42.00 area in the coming days.
European market update:
Apart from recovery in Oil, upbeat EZ IIP and UK labour may have
also boosted the overall EU market sentiment, which in turn also helped the
Indian market today in the closing session.
Meanwhile, global markets including EU markets are now trading
in deep green after release of Yellen’s testimonial, which sounds dovish; but
overall, the statement is nothing new. Fed may be committed to taper its B/S
from Sep’17 and depending upon its effect on the market, it will decide its future
course of action for further rate hikes either in Dec’17 or more gradual rate
hikes in 2018.
Thus, probability of a Sep’17 rate hike is now almost nil, but
Dec’17 meeting may be still alive as FFR is now indicating almost 53%
probability of the same, down from 60% prior to the Yellen’s statement. As a
result, USD/US bond yields slumped and Gold & stocks surged. But, we may get
more information from Yellen about Fed’s plan at the time of Q&A with the
US Senate.
FTSE is now trading around 7415, almost up by 1.17% supported by
some fall in GBP and upbeat job data today apart from Yellen’s sudden dovish
turn. Similarly, DAX is also trading upbeat at around 12621 (+1.50%) supported
by some fall in EUR/EU bund yields. CAC-40 & MIB-40 are also trading in
deep green around 1.75% & 1.50% higher.
EU market today also got some support
from upbeat retail sales data from Burberry, a retail/consumption stock.
US market update:
SPX-500 Soared To Almost Life Time High
After Yellen Sounds Less Hawkish Than Market Expected:
SPX-500
today surged to around 2443, almost to the life time high of 2451 after Yellen’s
testimonial statement shows that Fed is highly concerned about subdued US
inflation and thus will like to hike gradually; although it will begun to taper
its B/S shortly.
Thus,
in brief, Fed has almost decided about QE tapering from Sep’17, but Dec’17 rate
hike may not be certain as of now; it will depend on various factors after
start of tapering and other incoming US economic data. Today’s statement about inflation
by Yellen may be in contrast to her earlier rhetoric, when she termed it as
purely transitory and should not pose any problem in future rate hikes.
So,
even if Yellen sounds little dovish or rather than less hawkish, the statement
has nothing new, which market does not know; after the testimonial statement,
FFR is still showing 53% probability of a Dec’17 rate hike, down from 60% prior
to the release of the statement.
But,
Sep’17 rate hike probability may be now almost nil and all these factors are
causing USD down followed by EUR as a dovish Fed with no further hikes in 2017
may also help ECB to maintain similar accommodative policy. As a result, USD,
EUR and also JGB bond yields are plunging and stocks & Gold are surging.
Some
of the highlights from Yellen’s prepared statement today:
·
Additional gradual hikes needed in next few
years
·
Current path of economy expected to warrant
further gradual increase in the Fed funds rate
·
Fed likely to implement balance sheet
reduction plan 'this year'
·
Fed doesn't need to hike all that much
further to hit neutral
·
Economy picked up in Q2, aided by household
spending, business investment and stronger global economy
·
Carefully monitoring inflation but believes
recent dip is due to a few unusual price declines in certain items
·
Sees roughly equal odds of faster or slower
growth than current forecasts
·
Inflation
response to economy is key uncertainty
·
Job
gains, growth should foster wage and price gains
·
Inflation
running below goal, has declined recently
·
US
fiscal policy another source of uncertainty
·
Investment has turned up, growth abroad
strengthening
·
Sees moderate growth pace continuing next few
years
·
Long-run normal size of B/S still to be
determined
·
Fed doesn't expect to use B/S as active policy
tool
In
brief, Fed may not want dual QT (both QE tapering & rate hikes) at the same
time and thus now taking the excuse of tepid US inflation for hold till Dec’17;
but even then a QE tapering may not be good for risk assets (EQ), it may be
more worst than few Fed rate hikes.
SGX-NF
BNF
SPX-500
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