Nifty May Open Edged Up Tracking Muted Global Cues & US Political Squabbling; But A Higher EUR After “Un-Dovish” Draghi May Affect The EU/Global Market As Well As Indian Market Sentiment Later On; Slump In USD May Be Also Not Good For Risk-Assets

Market Mantra: 08/09/2017 (09:00)

SGX-NF: 9953 (+17)

For the Day:

Key support for NF: 9940-9900

Key resistance for NF: 10000-10050

Key support for BNF: 24200-24000

Key resistance for BNF: 24525-24675

Hints for positional trading:

Time & Price action suggests that, NF has to sustain over 10000 area for further rally towards 10050-10090 & 10160-10205 area in the short term (under bullish case scenario).

On the flip side, sustaining below 9980 area, NF may fall towards 9940-9900 & 9850-9800 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24525 area for further rally towards 24575-24675 & 24775-24875 area in the near term (under bullish case scenario).

On the flip side, sustaining below 24475 area, BNF may fall towards 24300/24200-24000 & 23850-23700 area in the near term (under bear case scenario).

As par early SGX indication, Nifty Fut (Sep) may open around 9960, edged up by around 17 points tracking muted global/Asian cues as USD is being hammered down after Trump proposed to repel the US debt ceiling regulations (senate approval/voting) itself; without any US debt limit may be equivalent to unlimited Federal debt, which is negative for US fiscal math and USD/US bond yields.

US bond yields again plummeted to almost 2% on this US debt limit fiasco, poor economic data yesterday (surge in initial jobless claims for Harvey), dovish Fed talks, renewed NK tensions after Trump indicated war is not out of options despite intense effort of diplomacy and ongoing Russian probe against Trump & co coupled with an uncertain Fed.

Although Trump administration is trying its best to rejuvenate the tax reform proposal, there are too many political & economical headwinds against USD and a lower USD may not be good for export heavy Asian markets; similarly a higher EUR may not be good for EU economy & the market, considering their export & tourism.

Yesterday, Draghi was in pain to explain that ECB has not discussed any QE tapering programme; but he also emphasized that ECB should be able to present its QE plan in its next meet on 26^th Oct. Draghi also not tried to talk down the currency and did not say either that ECB will continue its QE through 2018.

Thus, it’s now a question of when rather than if for the inevitable ECB QE tapering; most probably ECB will taper at a monthly rate of around 10 bln EUR/pm for H1CY17 and after that it may gradually began to hike/normalize their ultra low interest (NRIP/ZRIP).

Interestingly, today Fed’s Dudley also indicated that Fed may trim its QE bond holding by around $1 tln over the next 10 years; i.e. it may be also a QE/BS tapering at around $10 bln/pm, so overall effect on US bond yields may be negligible.

Now, it’s almost certain from various Fed speaks that they will be on hold in Dec’17 for various excuses like soft US economic data, subdued US inflation, US political jitters, NK geo-p0olitical risks and also Harvey & other series of hurricanes (Irma, Kat, Jose) !!

But the real reason may be Fed will not take any risk for dual QT (both QE tapering & interest hike at the same time) and thus watch the actual effect of QE/BS tapering on the US economy, bond yields and financial market as this is a new experiment, never tried before; if there is no such adverse effect, then Fed may consider any rate hike in March’18 and by then, FOMC rejig may be over; most probably Yellen may get another extension for policy continuity with some new FOMC members as selected by Trump.

Overnight, US market closed almost unchanged on slump in media stocks and some gains in health care despite a lower USD, which may be good for US exporters & the economy (imported inflation). Banks & financials were also in pressure as US bond yields plummeted, which is negative for their interest rate hike capability (NIM).

US stock future (SPX-500) is now trading around 2462, down by almost 0.14% on tepid global cues after another slump in USDJPY, which has broken the 108 level to almost 107.75, the lowest since Nov’16, Trump’s election win day, may be for the tragic & massive Mexican earthquake of M-8, triggering a Tsunami off Mexican coast.

Back to home, Indian market (Nifty Fut), after opening in positive zone, may also follow its global counterparts (HKG & DAX); although HKG now looks stable, DAX may be in pressure today as EURUSD is already hovering around the five year average mark of around 1.21 even before EU market opens.

Apart from adverse global cues, concern of stretched valuation & Govt’s war on black money/shell cos may continue to haunt the Indian market sentiment today.

SGX-NF