Nifty May Open Deep In Red After Another NK ICBM Test Over JP Airspace; But Flow To Safe Heavens Is Muted As This Is In Expected Line & Market Is Slowly Habituated To This “Game Of Chickens”

Market Mantra: 15/09/2017 (09:00)

SGX-NF: 10070 (-47)

For the Day:

Key support for NF: 10075-10025/9975

Key resistance for NF: 10105/10160-10205

Key support for BNF: 24700-24500

Key resistance for BNF: 25050-25150

Hints for positional trading:

Technicals indicate that, NF has to sustain over 10160 area for further rally towards 10205-10250 & 10325-10385 area in the short term (under bullish case scenario).

On the flip side, sustaining below 10140 area, NF may fall towards 10105/10075-10025 & 9975-9915 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 25050 area for further rally towards 25150-25250 & 25350-25500 area in the near term (under bullish case scenario).

On the flip side, sustaining below 25000-24975 area, BNF may fall towards 24700-24500 & 24400 -24300 area in the near term (under bear case scenario).

As par early SGX indication, Nifty Fut (Sep) may open around 10070, gap down by almost 47 points after NK “tested” another ICBM early in the morning today over JP airspace towards Guam (?) direction following its threat yesterday to “sink JP & reduce US mainland into ashes & darkness by a Nuke”.

But overall risk aversion flows to the safety of heavens (Yen, CHF, Gold, Bonds) may be quite muted till now as this launch was in expected line as NK was reported for preparing another ICBM for the last few days after US/UN sanctions. Market may be also gradually habituating for such frequent NK provocation & ongoing “war of words” between Kim & Trump until some serious miscalculations by both the sides.

So far, today’s US reaction is very limited & measured calling for China & Russia for more “pressure” on NK and Trump has not tweeted till now his rhetoric about the latest NK ICBM launch. But, this whole NK issue may also bring some trade protectionist & sanction measure against China for not agreeing to an all out oil embargo on NK. As par China, this is not possible as it may pose more risk from NK at its border and due to porous border; an all out sanction may not be so much effective.

Thus, until “war of bullets/nukes”, all such “regular” NK provocations & subsequent market volatility may be an opportunity for both traders & investors. Kim/NK provocations may be also positive for US defence industry as JP& NK has already increased their defence budget to “combat” NK, which may be also good for the economy of JP & SK (fiscal stimulus). Frequent NK missile & nuke games may be also helping the US economy & Trump to keep USD lower for its export benefit & imported inflation.

Overnight US market closed mixed over fear of another NK ICBM launch despite an upbeat US CPI data yesterday; USDJPY was unable to sustain over the 111 mark, equivalent to 10YUSTSY yields of 2.20%. Also, some confusion about Trump’s tax deal with some of his opposition DNC members at a WH dinner party may have affected the overall US market sentiment yesterday.

DJ-30 closed around 0.20% higher, while S&P-500 lost 0.11% & closed around 2496 and NASDAQ dragged by almost 0.48%; Boeing has helped DJ yesterday after analyst (DB) upgrade of this aerospace & defence stock. But techs, consumer discretionary were pressure, while energies has helped by some extent. US Stocks Fut (SPX-500) is now trading almost flat around 2494 (-0.07%) after some initial drops tracking NK ICBM.

Overall, market may be quite cautious after hawkish hold by BOE yesterday, indicating an imminent rate hike move by next 3-6 months to combat the higher trajectory of UK inflation, now around 3%, if overall economic data looks good (i.e. data dependent).

Fed & ECB are also poised to announce their QE tapering soon and BOC has already hiked twice in the last two meets. A global QT may not be good for the risk assets in 2018 and yesterday’s sudden improvement in US core CPI may also help Fed to keep its hawkish tilt in the coming months. Even if Fed does not hike rate in Dec’17, its BS tapering may also help US bond yields to rise as Fed will sell its QE bond holdings in the market (although it may be very gradual @10 bln/month for next 10 years).

Back to home, Indian market (Nifty Fut) after opening gap down may try to cover but EU market reactions may be also keenly watched. Overall, it now seems that FIIS are in selling mode for rising geo-political tensions, global QT bandwagons and coupled with that stretched valuations, muted Q1 earnings, falling GDP & rising inflation, widespread farm loan waivers across the states, NPA and concern of fiscal imbalance in India may be also worrisome despite some green shoots and attraction of 4-D (Modinomics).

 SGX-NF