Nifty May Open Edged Down Tracking Subdued Global Cues Amid Renewed NK Sabre-Rattling & GST Optimism; Indian Market May Focus On Govt’s GST Reform & Q2FY18 Earnings Trend

Market Mantra: 09/10/2017 (09:00)

SGX-NF: 9985 (-18)

For the Day: 

Key support for NF: 9940-9905/9880

Key resistance for NF: 10020-10065

Key support for BNF: 24050-23900

Key resistance for BNF: 24300-24600

Hints for positional trading:

Technicals indicate that, NF has to sustain over 10065 area for further rally towards 10115—10160 & 10205-10250 area in the short term (under bullish case scenario).

 

On the flip side, sustaining below 10045 area, NF may fall towards 9980-9940 & 9905/9880 & 9810 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 area, BNF may fall towards 24050/23900-23800 & 23700-23600 area in the near term (under bear case scenario).

As par early SGX indication, Nifty Fut (Oct) may open around 9985, edged down by around 18 points amid subdued global cues on lower USD after renewed NK sabre-rattling on the weekend despite “upbeat” US economic data. 

Although, US NFP for Sep flashed as terrible at -33k vs estimate of 90k; prior: 169k-R, average hourly earnings grew by 0.5% against estimate of 0.3%; prior: 0.2%-R (MOM); unemployment rate was 4.2% vs estimate/prior of 4.4%. In brief, higher revisions of Aug NFP coupled with surge in wage growth at +2.9% annualized rate made the USD buzzing, but it soon reversed the gain on realization that all the NFP figures are distorted due to the impact of dual hurricanes and thus may be revised further.

USD got some further jolts on reports that NK is planning to test another ICBM around 8^th Oct-18^th Oct, (NK Party Anniversary-China Party Congress) capable to hit US west coast. Thus, USDJPY which rallied to 113.44 soon after the NFP, again fall to 112.60 at the day end (Friday). Market may be also concerned that the sudden rise in US hourly wage growth may be skewed for hurricane related temporary relief work and thus market will now keenly watch Nov & Dec’17 NFP data for an overall trajectory of US job market.

In any way, FFR is now showing above 80% of a Dec’17 rate hike probability, considering ongoing Fed talks and recent spate of US economic data, which may be termed as mixed overall. But USD is now basically a victim politics rather than economics. On the weekend, Trump’s tweeter handle was again abuzz with NK rhetorics in a series of anti-NK tweets.

Trump basically tweeted that his three predecessors has been talking with NK for over 25 years without any meaningful result despite paying the hermit state a huge amount of “ransom money” ; in such scenario “only one thing will work”. This may be indicating that Trump may be settling for a “war” against NK & Kim and thus USDJPY is under pressure and is now trading around 112.60, almost unchanged.

It’s now seemed that despite scope of “dialogues” with NK, Trump is showing no urgency to talk, because a NK “war” hysteria may be a perfect instrument in the hand of Trump to make USD lower despite a hawkish Fed going for a dual QT coupled with some visibility of US tax reform and mixed US economic data; a lower USD is good for US economy, imported inflation and US corporate earnings/exports. Ongoing US political drama may be also helping to keep USD down.

Overnight on Friday weekend, US market closed almost flat on dilemma between economics & politics and concern of stretched valuation ahead of Q3 earnings. DJ-30 lost 2 points to close almost unchanged at 22774, while S&P-500 fell 0.1% to finish at 2549 and NQ-100 edged up by 0.1%; barring IT, almost all the sectors were in red on Friday. Energies (lower oil) & Pharma (Amazon disruption fear) and some retailers (poor guidance) were under pressure & SPX-500 is now also trading almost unchanged at 2547.

Looking ahead, EUR may get some strength as Catalonian separation movement may be backtracked and there was also some news that Merkel may forge a working coalition Govt in Germany soon. A higher EUR may not be good for EU & global market sentiment.

Back to home, Indian market (Nifty/India-50) is now trading upbeat around 10025, up by almost 0.25% after opening almost flat on subdued global cues and GST optimism ahead of Q2FY18 earnings. As expected, on Friday weekend, Govt has reduced GST rates on a number of sectors facing severe headwinds for higher rates. Govt also streamlined GST for exporters and certain SMES. All these have positive impact on the market coupled with renewed optimism about metals (global reflation).

Revised GST on manmade yarns, water pumps, hotels & tourism and PMLA benefit to the gems & jewelries were specifically positive for those sectors. On 5^th Oct, India’s service PMI for Sep also flashed at 50.7, marginally up from the boom/bust line of 50 (prior: 47.5); this was also good for the market sentiment after GST shock.

Market is hopeful that in H2, Indian economy may come back as DeMo & GST disruptions effect will fizzle out after Govt’s “pro-active” corrective actions (reform) for various GST ambiguities. But market may not be so much confident about earnings recovery in Q2 and thus all focus now may be on H2FY18. 

Although, some market participants are now projecting an average Nifty EPS of around 486 in FY-18, present trend may be indicating it as around 418; actually, 400 Nifty EPS is being proved as a big hurdle for the Indian market for quite a few years now despite all the “green shoots”. Actual Q1FY18 TTM EPS is now around 384, almost 2.5% down from FY-17 (Q4FY17) EPS of around 393. Earnings need to catch up with the rising PE & the market, irrespective of any narratives.

SGX-NF