Market Mantra: 04/10/2017 (09:00)
SGX-NF: 9875 (+7)
For the Day:
Key support for NF: 9860-9810
Key resistance for NF: 9925-9975
Key support for BNF: 23900-23700
Key resistance for BNF: 24300-24600
Hints for positional trading:
Technicals indicate that, NF has to sustain over 9925 area for
further rally towards 9945/9975-10015 & 10050-10115 area in the short term
(under bullish case scenario).
On the flip side, sustaining below 9905 area, NF may fall
towards 9860-9810 & 9760-9695 area in the short term (under bear case
scenario).
Similarly, BNF has to sustain over 24300 area for further rally
towards 24600-24750 & 24850-25050 area in the near term (under bullish case
scenario).
On the flip side, sustaining below 24250-24100 area, BNF may
fall towards 23900-23800 & 23700-23600 area in the near term (under bear
case scenario).
As par early SGX indication, Nifty Fut (Oct) may open around
9875, almost flat tracking positive global cues and renewed hopes of a RBI rate
cut after sudden roll back (cut) of ED by the Govt on petrol/diesel by 2/- just
ahead of RBI policy in an effort to signal the central bank that Govt is “proactive”
in containing inflation due to recent rise in Crude Oil.
Globally, USD was under some stress on concerns of legislative passage
of Trump’s tax reform bill and its ultimate benefit to the US corporates, US
middle class & the US economy itself as there is no credible plan to
contain the resultant fiscal/revenue deficit because of significant tax cuts
coupled with abolition of various tax deductions.
Market may be also worried about Fed chair uncertainty after
Yellen’s term expires in Feb’18. As par reports, although Yellen may be a
potential “candidate” for her extension, Trump may not oblige and will appoint a
fresh Fed chair. Previously, Warsh, a known hawk was speculated to be the next
Fed chair and thus USD got some boost yesterday, but now it appears that Trump
may also consider other 3 eligible candidates including Cohn and all these uncertainties
may have been affecting the USD/risk trade now.
Overnight US market closed in another fresh record high, helped by an upbeat auto
sales data for Sep; although the figure may be distorted by replacement led
demands from Harvey & Irma hurricane and some extra discounts. Apart from
auto, US market was supported by airlines (less than expected loss due to
Harvey/Irma and optimistic outlook) techs, industrials, defence and gun makers.
DJ-30 closed around 0.37% higher at 22642; S&P-500 added
almost 0.20% and closed around 2535 and NQ-100 rose by 0.2%. Overall, strong
Mfg PMI data on Monday and tax cut/reform optimism coupled with hopes for
blockbuster earnings in Q3/H2 may be driving the US market right now, although
the valuations may be quite stretched.
Thus Q3 earnings growth needs to catch up the rally in the US
market, which is so far up by more than 13% YTD in S&P-500. Another headwinds
for the US stock may be higher interest rates & USD amid Fed fear of dual QT
(both BS tapering & Fed rate hike in Dec), which may result in US bond
yields surge.
US stock future (SPX-500) is now trading around 2531, almost flat (-0.06%); market may
now focus on Yellen & Draghi speech apart from deluge of US economic data
including NFP on Friday. Also NK ICBM activities may be on the watch in the weekend
or next few days till 18th Oct, China’s Party congress. Technically,
SPX-500 now need to sustain above 2535 zone for further rally; otherwise expect
some corrections.
In the morning today, World Bank raised China GDP for 2017 &
2018 to 6.7% (vs 6.5%) & 6.4% (vs 6.3%), which may have also boosted the
Asian/Global market sentiment to some extent.
Back to home, Indian
market (Nifty Fut) is now trading around 9920; up by almost 0.52% on hopes
of a RBI repo rate cut by at least 0.25% to 5.75% after Govt unexpectedly cut
ED on gasoline by 2/- yesterday after market hours to contain WPI/inflation,
which may be a signal for RBI to consider an urgent rate cut today to stimulate
the slowing economy.
Overall, most of the economists recently polled are not
expecting any change in policy from RBI this time; but some hopes are there for
CRR cut or even a 0.25% “Diwali Gift” (unexpected cut) to the nations to
rejuvenate Indian growth story.
Looking at today’s price action so far, it seems that market may
be already discounting a “dovish hold” or even a 0.25% cut by RBI; in that
sense, if RBI turns out to be on “hawkish hold” side today; market may fall
again to some extent.
RBI may term the sudden fall in Q1 GDP as “one off” (transitory)
due to adverse effect of GST & DeMo and may wait for another 1-2 QTR for a
definitive view & rate action. RBI may also lower the GVA/GDP projection
for H2FY18, while keeping the CPI target intact.
But sudden ED cut by the Govt may be also treated as political
populism and negative for fiscal deficit concern as around 0.16% of GDP revenue
may be affected for such ED cut, while GST revenue may be still subdued. Market
is already cautious for muted Q1 earnings, stretched valuations and concern for
fiscal slippages amid talks of various fiscal stimulus package by the Govt to
revive the economy out of its deepest slump since 2014.
Also, a mere 2/- or even 5/- tax cut (central ED, state VAT
& OMC margin) may not be enough for containing spiraling inflation as 0.25%
of CPI may be affected for a 10% movement on retail prices of gasoline; states
may be reluctant to offer such cut in VAT irrespective of their political
colours as its an easy way of revenue.
Again, if RBI cut 0.25% today, it may not move the needle too
much to stimulate the Indian economy as in this era of globalization; Indian repo
rate should be around 4.5% at least in comparison to China’s 4.35%.
Although, theoretically RBI can cut by another 1% to bring the
repo rate at 5% and RRI/neutral rate at 1.5% assuming average CPI at around
3.5%; but that may be very risky for RBI credibility and the legacy stance of a
“hawkish central bank” among the FPIS, who are very fond of India’s traditional
high bond yields as a rare combination with a stable economy & democracy.
Any drastic change to a dovish central bank can seriously harm the Indian bond
market.
SGX-NF
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