Nifty Set To Open In Green On Positive Global Cues As USD Edged Up On Renewed Hopes Of US Tax Reform; Indian Market May Focus On Oil & GST Simplification Apart From Earnings

Market Mantra: 08/11/2017 (09:00)

SGX-NF: 10390 (+25)

For the Day: updated 12:30

Key support for NF: 10360/10320-10290/10240

Key resistance for NF: 10450-10525

Key support for BNF: 25200-24950

Key resistance for BNF: 25550-25700

Trading Idea (Positional):

Technically, NF has to sustain over 10450 area for further rally towards 10525-10575 & 10625-10675 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 10425 area, NF may fall towards 10360/10320-10290/10240 & 10190-10130 zone in the short term (under bear case scenario).

Technically, BNF has to sustain over 25550 area for further rally towards 25700-25800 & 25950-26100 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 25500 area, BNF may fall towards 25300/25200-24950 & 24800-24550 area in the near term (under bear case scenario).

As par early SGX indication, Nifty Fut (Nov) may open around 10390, gap up by almost 25 points tracking positive global/Asian Cues on higher USD amid renewed optimism about US tax reform after House Speaker Ryan signalled about corporate tax cut, but most probably with a gradual effect; previously there was some report that due to various issues, RNC may not be in favour of corporate tax cut in 2018.

But still, there are lots of confusions about this US tax reform proposal and divergence of views & huge tax deficit of over $1.5 tln for next ten years; US Senate is also set to release their version of tax reform shortly (not today as earlier reported) and thus market may be skeptical about ultimate form of tax reform, corp tax cut and its legislative passage & implementation.

Market may be also worried that after defeat of two key regional elections (Gov) by DNC, it may be tough for Trump/RNC to pass all their legislative agenda without significance compromise including the all important US tax reform bill.

In the early Asian session today, China PPI for Oct came upbeat at 6.9% vs est 6.6%; prior: 6.69%; CPI also flashed as 1.9% vs est 1.8%; prior: 1.6%. Although the PPI was same as Sep, it came on the back drop of Govt action of deleveraging, cut in industrial capacity. Thus a stable PPI in China is good for global reflation and thus there was some risk-on movement in the early Asian session today after China PPI.

Overall, today’s China CPI data of 1.9% is highest since Jan’17, but still below Govt’s target of around 3%; again the strong CPI data may be indicating for a solid GDP growth and tighter labour market. Although, Govt’s deleveraging drive to cut excess industrial capacity and curb factory production to fight winter pollution may have also contributed to higher core CPI amid elevated commodity prices.

Looking ahead, as China economy will likely to slow down in 2018 because of Govt’s policy of “quality growth” and ongoing clampdown on excessive leveraging, both CPI & PPI may came down.

Meanwhile, there was some report that because of IPO frenzy in China/HK, interbank rate in HK money market has shoot up and thus there is some risk aversion move; USD & HK stocks nosedived affecting the overall global/Asian mood.

Overnight US market edged up on renewed hopes of US corp tax cut and support of earnings from tech titans coupled with increased NK rhetoric from Trump;  DJ-30 closed almost flat at 23563 (+0.03%); S&P-500 edged up by almost 0.10% and closed around 2594, while NQ-100 gained by 0.3% to close around 6789.

US market was yesterday helped by techs (Apple optimism & video game makers) but dragged by banks & financials on flattening US yield curve, pointing towards an imminent recession or slow down in the economy, but it may be a function of Central Bank presence in the bond market; such flattening yield curve may be also an indication that market is not expecting less fiscal leverage from US budget because of possible modifications & delays in US tax reform.

Snap plunged by over 15% due to muted earnings and subdued users additions despite buzz of M&A activity from Chinese tech giant Tencent. But J&J, GS & Wall-Mart, AT&T (needs to sell CNN for proposed M&A with Time Warner) also supported the market, while health insurers & Fossil Gr dragged.

Looking ahead, at the 1^st anniversary of “Trumpism”, the narrative of “Trumpflation trade” may be now doubtful as the actual result may be almost zero; there is little sign of “Trumponomics” (higher inflation, higher growth, incrementally higher fiscal spending and deregulation-US tax reform). 

Market was very hopeful that US corporate tax cut of 15% will be effective at one go with retrospective effect from Jan’17; but that may not be the case going forward and thus US market may be disappointed.

Back to home, Indian market (Nifty/Indai-50) is now trading around 10330, at session low so far and down by almost 0.20%, but well off the opening high of 10400 amid ongoing concern over Saudi purge & resultant higher oil coupled with increasing PMLA action by the Govt to stop the flow of black money.

As par latest directive, linking of UID is mandatory for DEMAT, MF & Life insurance products; traditionally these are the investment vehicles for Indian black money in huge volume or so called “Benami Assets” apart from real estate/lands. 

Thus power of domestic liquidity which was suddenly surged after DeMo and primarily responsible for the epic market rally, may be now on Govt lens as by simply channeling it through banks, it does not become “white” (accounted) overnight; one has to pay tax & fines on it in addition to possible prosecution depending upon the nature of black (unaccounted) money.

SGX-NF