Market Mantra: 10/11/2017 (09:00)
SGX-NF: 10330 (-43)
For the Day: updated 12:30
Key support for NF:
10290-10240
Key resistance for NF:
10350-10425
Key support for BNF:
25200-24950
Key resistance for BNF:
25550-25700
Trading Idea (Positional):
Trading Idea (Positional):
Technically, NF has to sustain over 10380 area for further rally towards
10425-10475 & 10525-10575 zone in the short term (under bullish case
scenario).
On the flip side, sustaining below 10350 area, NF may fall towards 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 10330, gap down by almost 43 points
on negative global cues amid one year delay in US corp tax cut
and some modifications of the RNC tax proposal by US senate, which may not be
favourable for the US corporates/SMES.
US stocks/USD initially plunged on concern that tax cuts would
be delayed as the Senate Finance Committee on Thursday released its version of
a tax plan that would defer implementing a 20% corporate tax until 2019,
against 2018, as proposed by House RNC.
But some of those jitters were soothed in the late NY session,
when the House Ways & Means Committee passed the bill put forward by the
RNC which proposes cutting corporate taxes to 20% from 35% (time?) repeals the
estate tax over time, and revise the existing seven tax brackets into four. The
bill will move to the House floor for a vote, possibly as soon as next week.
The tax bill written by House RNC may increase the U.S. deficit
by $300 billion more than lawmakers estimated, the Congressional Budget Office
said Wednesday. And over a decade, it would increase the tax deficit by $1.7
trillion, beyond the $1.5 trillion required to meet Senate rules under the
recently passed budget.
Previously market was expecting with great
optimism about US corp tax cut with not only from 2018, but may be also
retroactively from Jan’17 and this is one of the primary factors behind epic
market rally of over 21% after Trump came into power exactly one year ago; both
USD/US bond yields & stocks slumped on this tax cut disappointment and
market may also revise US earnings projections, which were earlier based on
such tax cut and rerate the US market, which is now running much above the
historical P/E.
US Senate has also made some modifications in the
RNC tax proposal like removal of state & local tax deductions including
property & sales tax; increased the proposed repatriation tax on cash/cash
equivalent from 12% to 14% and on current/illiquid assets from 5% to 7%; this
is not going to make US MNC happy.
Yesterday, RNC senator
(Bill Cassidy) confirmed that US Senate won’t lower corporate tax until 2019 and will also not go for Obamacare repel’ it will also not
include the “excise tax” on offshore payments.
But US market came off
their lows & USD also recovered to some extent after another RNC Senator
Corbyn said that Senate RNC members are looking for any possible way to
avoid such tax delays. Also, approval of a bill to overhaul US tax codes by
House Ways & Means committee and sending it for vote by the full house may
have helped the market to trim some loses yesterday.
US Senate will officially publish its final tax proposal today
or early next week for next step of debate & legislative passage;
considering Trump’s own RNC numbers & various local issues regarding tax
cut & revenue impact, it may be very tough for Trump to pass the same
without broad/bipartisan consensus.
It seems that US House & Senate are not on the same page
regarding this tax reform issue and the resultant delay & uncertainty will affect USD/US bond yields and also the US
stock market. Fed may also not consider the US tax reform rhetoric in its
monetary poly stance until it passes and implemented.
Market may be also concerned about recent loss of two RNC seats
to DNC in a regional election, which may be indicating falling popularity/approval
rate of Trump among electorate and that may be some headwinds for him in the
2018 congressional elections.
Overnight, US market tumbled on corp tax delay jitters coupled with weakness in tech
titans; Microsoft and other FANG/tech shares were under pressure; but market
recovered by almost 50% at the end of NY session.
Dj-30 slumped by 0.43% and
closed around 23462 after making a low of 23310; similarly S&P-500 lost
almost 0.38% and closed around 2585, recovered from deep 1% loss on tax cut
delay panic, while NQ-100 plunged by almost 0.58% and closed around 6750.
US market also recovered
almost half of the knee-jerk tax delay low on the
perception that even if corp tax cut will be delayed by another year, SMES may
be accommodated by some special tax cut deductions to stay afloat.
In any way, although the corp tax cut of 15% (from 35% to 20%)
looks awesome at glance, the reduced tax of 20% will come with less/no tax
deductions and thus the resultant effect on the corporates /SMES may not be
significant.
With 35%+ all tax deductions, effective US tax rate may be around
25.5%, which is not far away from 20% + limited/no tax deductions; but to get
full benefit of tax deductions, one has to invest/save huge on various schemes,
which may be more difficult for SMES, which is not the case for large US corporates.
Thus deregulation of direct tax cut rather than tax deductions may be more
beneficial for SMES rather than big corporates.
Overall, almost half of the major US sectors were in red yesterday lead
by techs & industrials. Big names in techs/MNC (Apple, MSF, Alphabet,
Oracle, FB) slumped more on prospect of the 14% repatriation tax and they have
to also shell out heavy tax on their current assets overseas, even if they do
not repatriate their profits back to US!!
US stock future (SPX-500) is now trading around 2580, edged down by almost
0.10% tracking negative Asian cues ahead of EU market opening, which is set to
resume the day subdued. But market may be still hopeful about some last minute
compromise of US tax reform bill & cut the corporate tax in the next year
(208) rather than delaying it to another year (2019).
Back to home, Indian
market (Nifty/India-50) is now trading around 10325, down by almost 0.35%
on muted global cues and concern for higher oil amid intensifying Saudi purge
on “corruption” and “games of thrones”. Market may be also concerned about increasing
regulatory PMLA actions on the Indian financial markets to prevent free flow of
unaccounted money in the system.
All focus may be now on report card from SBI, the country’s
largest lender to gauze the extent of NPL & actual resolution of the NPA
apart from IIP data & GST recalibration & overall simplification of the
process. Market may be poised for some bounce back on GST news, but going by
the intense trial balloons for the last few days, this is already known to the
market and thus may be already discounted to a great extent.
Market may also focus on state elections for GJ & HP; any
disappointing result for the BJP there may be a huge political risk amid
widespread GST, DeMo, economic slowdown & resultant huge un/under
employment problem.
SGX-NF
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