Nifty May Open Edged Down Tracking Mixed Global Cues Amid An “Unimpressive” Trump Tax Reform Draft & Concern Of Domestic Slowdown

Market Mantra: 28/09/2017 (09:00)

SGX-NF: 9720 (-22)

For the Day: NF/NS & BNF/BNS

Key support for NF: 9695-9645

Key resistance for NF: 9785-9825

Key support for BNF: 23700-23600

Key resistance for BNF: 23900-24100

Hints for positional trading:

Technicals indicate that, NF has to sustain over 9785 area for further rally towards 9825-9860 & 9910-9950 area in the short term (under bullish case scenario).

On the flip side, sustaining below 9765-9745 area, NF may fall towards 9695-9645 & 9580-9450/9405 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 23900 area for further rally towards 24100-24300 & 24550-24750 area in the near term (under bullish case scenario).

On the flip side, sustaining below 23850 area, BNF may fall towards 23700-23600 & 23450-23250 area in the near term (under bear case scenario).

As par early SGX indication, Nifty Fut (Sep) may open around 9720, down by almost 22 points tracking mixed/subdued global/Asian cues after an “unimpressive” Trump tax reform/cut plan devoid of any retrospective effect and very little on details about deficit funding. Regional Asian market (HK/China) is also under some pressure on rating downgrade of a blue-chip Chinese property developer (Wanda) by S&P coupled with forthcoming long holiday season in China (Golden week).

Although, NK tension seems to be cooled down a bit, as par latest report SK is apprehending some NK ICBM or even a Nuke test around 10-18^th Oct coinciding with the anniversaries of NK Communist Party and also China’s Party Congress time!!

USD got some boost yesterday after upbeat durable goods order, pointing towards a higher inflation for the US economy. But core portion of the same was not so much impressive and tepid pending home sales figure may be also distorted by Harvey & coupled with that some disappointments for the Trump tax reform proposal, USD dropped a little bit along with risk trade.

But US stock market got some boost after dovish jawboning by Fed’s Bullard an influential known dove, advocating for no rate hike in Dec’17 for inflation “mystery”; he also doubted about credibility of Fed’s dot-plots in the financial market; a lower USD may be good for US stocks/exports earnings & imported inflation perspective. 

Also, a tax cut is a tax cut be it retrospective or not and thus US stocks got some late boost along with long term 30YTSY yields; thus the old Trumpflation trade may be again coming back for the US market. US small caps (Russel-2000) may be benefited most from Trump’s tax plan and as par US comm. Sec (Ross), US GDP may be boosted by 1% for this long awaited tax reform.

But, the retrospective effect may also be significant for US corporate earnings this year (CY-17) and was one of the reasons for so much US stock market optimism; previously market was expecting that all cuts of the Trump’s tax proposal may be effective from Jan’17irrespective of their date of legislative passage & implementation. 

Market may be also concerned about Trump’s ability to pass his tax reform plan by the US congress amid deep divisions within his own RNC party and a hostile DNC as this tax plan is basically aimed to slash taxes on corporates & the riches.

Overnight US stock market closed in green, supported by US tax cut optimism, banks & financials on higher bond yields and bargain hunting in tech/FANG stocks, while dragged by utilities, consumer staples and real estate investment trusts; DJ-30 closed around 0.20% higher, while S&P-500 was up by around 0.40% and closed at 2508 after hitting an all-time high of around 2510; NQ-100 rallied by almost 1.2%.

US stock future (SPX-500) is now trading almost unchanged at around 2505 (+0.04%) on subdued Asian cues ahead of EU market opening. Looking ahead, SPX-500 need to sustain above 2415 zone for further rally; otherwise it may come down again.

Back to home, Indian market (Nifty Fut) is now trading around 9740, almost unchanged after some early panic amid slow down fears; but may be covering some shorts from the positional vital support of 9695 in Nifty Fut (Sep).

Govt may be also concerned about GSTN fiasco and low number of return filling for Aug amid subdued GST collections. Thus Govt is engaged itself with the concerned GST stakeholders, especially the SMES and small traders, for which proper GST implementation may be a big challenge.

Govt may be also under immense pressure to “do something” for the economic revival after DeMo & GST disruptions, which is now become a “hot political issue” for both the Govt/BJP & Oppositions/INC; but an immediate or even short term relief through a credible fiscal stimulus package may be very limited as the core issue may be of structural in nature.

Slow down in India started long before DeMo with an environment of very high real rate of interest/bank lending in India, stressed twin balance sheet and lack of private investments. Also, legacy issues of very high inflation/price instability may be hampering real wage growth and eventual discretionary consumer spending. 

But drastic cut in RBI repo rate like 1% may not be possible for India right now because of bond market factor/high & attractive Indian bond yields for FPIS and USD/INR equation. Unless Indian banks lend to the corporates & SMES at a comparable rate with its DM/EM counterpart like China around 4-6%, it may be very difficult for them to sustain the increasing competition from overseas cos.

 SGX-NF