Market Mantra: 02/11/2017 (09:00)
SGX-NF: 10460 (-13)
For the Day: updated at 11:45
Key support for NF:
10450-10400/10375
Key resistance for NF: 10505/10525-10575
Key support for BNF:
25225-25050
Key resistance for BNF:
25575-25775
Trading Idea (Positional):
Technically, NF has to sustain over 10525 area for further rally towards
10575-10625 & 10675-10825 zone in the short term (under bullish case
scenario).
On the flip side, sustaining below 10505 area, NF may fall towards 10450-10400/10375
& 10310-10195 zone in the short term (under bear case scenario).
Technically, BNF has to
sustain over 25625 area for further rally towards 25775-25935 & 26100-26325
zone in the near term (under bullish case scenario).
On the flip side,
sustaining below 25575 area, BNF may fall towards 25450-25225 & 25050-24850
area in the near term (under bear case scenario).
As par early SGX indication, Nifty Fut (Nov) may open around 10460, edged down by around 13
points tracking subdued global/Asian
cues as USD goes lower on Fed
chair & US tax cut suspense despite a fairly “hawkish hold” stance from Fed
yesterday; as a Dec’17 rate hike by Fed is almost discounted, market may be now
concerned over credibility of Fed’s 2018 dot-lots (3 hikes) under new
leadership and US tax reform squabbling. A lower USD is not good for export
savvy Asian & EU market.
Also, some news that after the grand Party Conclave, Chinese corporates now beginning to
report their sets of “bad news” and today a debt-laden Chinese port management
co (Ding Dong) has defaulted on a 1 bln Yuan bond scheduled for repayment on
Monday. As China “sneezes”, global market gets “cold”, which often converts to “pneumonia”.
Recently China bond yields has soared for ongoing deleveraging
drive by the Govt and bond prices plummeted; as par some reports, bonds worth
nearly 1 tln Yuan are set to mature shortly and thus market may be concerned
over more such defaults. Also, surging bond yields are creating problem for
SMES in China, who rely heavily on the bond market for their financing need
rather than banks.
As highly expected, Fed
holds yesterday with a hawkish stance, thus paving the way clearer for the
Dec’17 rate hike (except some terrible economic news or some geo-political developments
in the meanwhile). FFR is now showing a probability of almost 92% for the same
and market may be already discounted for that also; even if Fed hikes in Dec’17,
USD may not break the 115 zone until new leadership confirms about Fed’s
projection for 2018 policy trajectory.
Some of the changes from
the last Fed statement in Sep are:
“Economic activity rising
at "solid rate" despite storms (earlier "rising moderately”);.Inflation
remains soft even though gasoline price rises after hurricanes boosted
inflation; Measures of longer-term inflation expectations little changed; Balance
sheet taper continuing; Household spending has been expanding at a moderate
rate; Growth in business fixed investment has picked up in recent quarters”.
Thus, overall Fed is quite optimistic about US growth &
employment, but clearly confused by US inflation “mystery” and thus although a
Dec’17 rate hike is now almost guaranteed, the same may not be true for its
2018 projections of 3 more hikes; Fed has to keep its actual rate hikes in
tandem with US core inflation to keep the real rate of interest (neutral rate)
at an appropriate level.
Again, US or global inflation, wage growth may be now a
structural issue of automation, globalization and ongoing currency war and thus
monetary policy model of 1980’s can’t fix it unless, we see some structural
reforms.
Overnight US market closed mixed on lower USD (favourable for US stocks) and some
muted earnings coupled with overall optimism about US economy as expressed by
Fed yesterday (“solid growth”); it’s like a goldilocks situation for US market.
Although real wage growth is decent, it’s fair enough for a moderate US
consumption push as inflation is also lower. The same perception holds good for
the EU market also. But concerns of higher borrowing costs remains as Fed is
gradually hiking with BS/QE tapering (dual QT).
US small cap stocks were under pressure yesterday for ongoing
confusion about gradual cut of corp tax rather than at one go as highly
expected earlier.
DJ-30 closed higher by almost 0.25%, S&P-500 edged higher by 0.16% to close around 2579, while NQ-100 dropped by almost 0.17% on muted
report card by Tesla; but FB soared after market hours on upbeat results
(slight beat in revenue). Market will focus on earnings from Apple & Alibaba
report card later in the day today. Overall, yesterday US market was dragged by
techs & biotechs on poor earnings.
So far, out of 500 cos in S&P-500, almost 326 has reported
their results and out of that around 73% has beat the market estimates; Q3 EPS
is set to grow by around 7% on YOY basis.
US stock future (SPX-500) is now trading around 2569, down by almost 0.20% on
muted Asian/China cues ahead of EU market opening amid concern of US corp tax
cut mechanism.
EU stocks closed upbeat yesterday helped by metals/miners (basic
resources) tracking moderate China Mfg PMI data coupled with prospect for a
less hawkish Fed chief in the form of Powell rather than Taylor, a known hawk.
EU market was also boosted by automakers yesterday after upbeat auto sales
figure from US. Also signs of Catalan peace and a relatively higher USD
yesterday ahead of Fed may have helped the overall market sentiment, but mixed results
also capped the upside.
FTSE-100 was under pressure as GBP gone higher on upbeat Mfg PMI coupled
with high expectations for a BOE rate hike today. Also muted report card from Next
& Stanc has affected the overall UK market sentiment yesterday, but
metals/miners gave some support to the market.
Back to home, Indian
market (Nifty/India-50) is now trading around 10465, almost flat (-0.11%)
as the market is consolidating its gain ahead of EU market opening amid muted
Asian cues. Apart from “ease of doing business” boost, market will also focus
on FM’s plan for PSBS consolidation move; market may be also hopeful about a
rating upgrade next year, if NPA situation in Indian banks improves
considerably along with deleveraging of stressed corporates.
But, recaps (bail out) of
PSBS is not a new phenomenon; it was happened many times before and in
every instances, PSBS and even some private banks again indulged in reckless corporate
lending and thus overall corporate governance and lending quality should be
improved first before putting more funds into the ailing banks.
Govt may be also thinking in that line and thus consolidate weak
banks with the stronger ones before putting more money into it. Thus, recaps of
PSBS may be very selective and will come with several caveats.
Apart from corporate debt, overall household debts in India is
also rising alarmingly and a significant portion of that is unsecured like in
pre 2007-08 recession (personal loan/credit cards) and with increasing un/under
employment & US/EU nationalism (anti-immigration/outsourcing), Indian banks
may also face significant headwinds from retail loans in future.
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