Monday, 9 April 2018

Nifty edged down on Friday amid subdued global cues on concern about US-China trade war and RBI relief

Market Wrap: 06/04/2018

NSE-NF (April):10342 (-10; -0.10%)

NSE-BNF (April):24864 (+55; +0.22%)

Market Mantra: 07/04/2018

Updated: 08:35

SGX-NF: 10310 (-32; -0.30%)

Expected BNF opening: 24785 (-0.30%)

(Flat opening on dovish hold by RBI and subdued global cues amid plunge in US stock market on Friday after reports that there is currently no back or front door negotiation between US-China and China is also not interested in talks with the US under the current circumstances of constant Trump tariff threat; But morning Asian cues are stable on hopes of US-China truce).

March-Fut (Key Technical Levels)

Support for NF:


Resistance to NF:


Support for BNF:


Resistance to BNF:


Technical View (Positional):

Technically, Nifty Fut-March (NF) has to sustain over 10435 for a further rally towards 10465-10500/10545-10600/10650 in the short term (under bullish case scenario). 

On the flip side, sustaining below 10415 NF may fall towards 10290/10270-10230/10190-10150/10100 in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 25100 for a further rally towards 25300-25500/25850-26075/26255 in the near term (under bullish case scenario).

On the flip side, sustaining below 25050-24950, BNF may fall towards 24700/24600-24450/24300-24200/24100 in the near term (under bear case scenario).

The Indian and global market story on 06/04/2018:

The Indian market (Nifty Fut/India-50) closed around 10342 on Friday, edged down by almost 0.10% on subdued global cues amid concern of renewed US-China trade war following Trump’s fresh tariff plan of $100 billion on Chinese goods. The market was also supported by Thursday's RBI Goldilocks optimism & dovish hold coupled with the step of keeping the PSBS in ICU under ventilation by providing temporary relief to defer Ind-AS accounting norms by one more year and spread of Q4FY18 bond loses by next four quarters.

Nifty Fut-I made a high and low of 10376 and 10312 amid a day of moderate volatility ahead of earnings season and ongoing concern about ICICI and PNB fiasco and the NPA saga. The market is also concerned about increasing litigations involving NCLT/IBC NPA recoveries.

But the market is also expecting a substantial corporate NPA recovery to the tune of Rs.1.18 trillion after 50% haircuts from nine big cases involving a principal outstanding of around Rs.2.13 trillion as NCLT/INC process get some momentum ahead of RBI deadline in May for the 1st batch of “dirty dozen”.

The Indian market is also hopeful for lowing in GSEC bond yields as the government is in the process of easing and increasing FPIs limits by 0.50% each year to 5.5% in FY-19 and 6% in FY-20 and subsequent higher demands of Indian government bonds. The Indian government is also expecting to clock below 3.5% of fiscal deficit for FY-18 at 98% of revised estimate for Rs.5.94 trillion. But the government is also quite unhappy about lack of adequate private capex to help India’s economic momentum amid stressed corporates.

Although the government is looking for 10Y Indian bond yields below 7%, its still hovering around 7.20% as the market may be still in dilemma about the attempt of temporary window dressing by the RBI/government.

As par one of the top BJP leader (Amit Shah), the government is trying to reduce fuel prices by bringing petrol and diesel under GST. This follows amid widespread criticism of government’s previous moves to impose incrementally higher excise duties and other taxes as an easy route for revenue collection when oil fell to $40 level.

On Friday, Nifty was helped by HDFC Bank, ITC, ICICI Bank, BPCL, Maruti, RIL, Titan, HDFC, Bajaj Finance, Sun Pharma and others by almost 38 points altogether, while it was dragged by Infy, L&T, Bharti Airtel, VEDL, Indusind Bank, Axis Bank, HUL, HBL Tech, TCS, Grasim and others by around 31 points cumulatively.

Overall on Friday, Indian market was helped by banks & financials (dovish hold by RBI and some fall in bond yields), automakers, mixed FMCG, pharma, reality, consumption, and energies (talk of GST on petro products and higher oil) while dragged by techs, metals, and infra.

On Friday global cues were negative during Indian market hours:

On Friday global cues were negative during Indian market hours after Trump divulged a fresh plan to impose taxes on Chinese goods worth $100 billion. US stock future (SPX-500) was down 0.9% after Trump late Thursday told US Trade Representative Lighthizer to consider whether to add tariffs on another $100 billion worth of Chinese goods as punishment for China on Wednesday announcing reciprocal tariffs on $50 billion of US goods. 

China early Friday responded with a statement saying, "The Chinese side will follow suit to the end and at any cost, and will firmly attack, using new countermeasures, to firmly defend the interest of the nation and its people." 

The problem for China is that tariffs on $150 billion of US imports would max out its capability to levy tariffs since China has only ever annually imported more than $150 billion of US goods twice.  The US, by contrast, can ramp its levies up to the full amount of the $500 billion of Chinese products that the US imported last year. 

However, China could use other means of retaliation such as clamping down on US businesses that produce and sell goods within China and shutting down outbound Chinese tourism to the US.  There is also the perennial threat that China owns some $1.3 trillion of US government securities that it could dump on the market and cause an upward spike in US interest rates besides devaluing its own currency, Yuan.

The Euro Stoxx-50 index was down by 0.6%, showing a smaller decline than the US. Asian stocks largely took President Trump's $100 billion threat in stride.  Japan's Nikkei index closed only -0.4% lower today and Hong Kong's Hang Seng index closed up +1.11%.  The Chinese mainland stock markets were closed again on Friday for a national holiday and haven't traded since China announced its tariff retaliation on $50 billion of US goods after Wednesday's close. 

On Friday, Asian stock markets closed mixed:  Australian S&P 200 unchanged, Singapore Str. Times +1.08%, South Korea KOSPI 200 -0.46%, India NSE Nifty -0.10% (almost flat); While China was closed for the day, the offshore Yuan slid, with the USDCNH rising 250 pips amid rising concerns China may retaliate by devaluing the currency after Beijing said it would counter US protectionism “to the end and at any cost.”

Asian equity markets traded somewhat indecisive as the region pondered over US trade policies in which recent efforts by US officials to ease trade concerns which helped Wall St notch a 3rd  consecutive gain, was thwarted after Trump ordered to consider an additional USD 100bln of tariffs against China. This latest announcement was in response to China’s retaliation and dragged US stock index futures, while the pressure in ASX 200 was contained and later reversed amid commodity sector strength in Australia and Yen weakness.

Elsewhere, mainland China remained shut and Hang Seng bucked the trend to trade firmly higher as it played catch up to the gains during the holiday closure.

European bourses opened on the back foot as cautious sentiment resurfaces amid the escalating trade tensions. This follows US President Trump’s instruction to US Trade Representatives to consider USD 100 billion of additional tariffs on Chinese products. Almost all the sectors were in the red with the exception of utilities. Material names were underperforming amid the weakness in base metals along carmakers, another potential Trump target.




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