The Indian market plunged Thursday on terrible
global cues after an overnight plunged of Dow future by over 800 points, followed
by another 350 points in the morning Asian session amid higher bond yields and
as Fed “gone crazy” and “going loco” in Trump’s version as he doubled down on the
Fed for its hawkish monetary policy and “gradual”
rate hikes.
In brief, Dow future plunged over 1150 points from
Wednesday on the concern of higher borrowing costs amid surging bond yields and
stress on techs. The benchmark 10Y US bond yield-scaled
a multi-year high of 3.244% and moreover sustaining above the level of 3.15%,
which is not a good sign for the US corporate bottom line and the overall
economy.
The US bond yield moved higher on Wednesday after
a brief respite Tuesday, apparently on comments from Fed’s Williams. The NY Fed
President Williams said "further gradual increases in interest rates"
are the best way to foster a sustained expansion and also reduce risk-taking in
financial markets. The US bonds are also under stress on a deluge of US debts
supplies amid Wednesday’s UST auctions of 10Y for $23B and 3Y for $36B.
On Wednesday, the US bond yield was also supported
by the US core PPI for September, which jumped to +0.2% from prior slump of
-0.1%, right on expectations sequentially.
The US bonds are slumping basically due to lack of
sufficient foreign institutional interest (Japan/EU) for high and unviable
hedging costs (negative return and high-cost
year-end FWD contract rollover issue). To simply put it, supplies of
US treasuries in the market are now higher than demand and thus US Treasuries
are plunging, causing higher bond yields. China, Japan and also Russia may also
sell their US Treasury holdings in retaliation to Trump tantrum.
Historically, the spread between the US 10Y bond
yield and the Fed rate is around 1% and
thus at Fed Fund rate of +2.25%, the present 10Y yield is hovering around
+3.25% and aiming for +3.50% in the coming days as Fed is poised to hike
another +0.25% in Dec’18 to bring the US nominal rate at +2.50%.
In that scenario, the benchmark Indian 10Y bond
yields should hover around 8.50% (spread around 500 bps). And RBI has to hike by
another 1% in rest of FY-19 and FY-20 to 7.50% to maintain the spread of 1%
between 10Y GSEC yield and Indian repo rate, everything being equal.
The US 10Y bond yield dropped around 3.15% early Thursday
after an apparent institutional support (Fed’s plunge protection team) in the
last hour of trading Wednesday. But Dow future is not so much convinced as the
US 10Y bond yield is targeting 3.50-3.55% zone in the coming days unless Fed abandons its Dec’18 rate hike
plan and de-board the “loco” as per Trump’s “advise”.
The Indian market got a brief respite on Wednesday
as SBI is planning to bail out
cash-strapped NBFCs by lending them Rs.45B fresh. But all these have little bearing on India’s surging bond
yield above 8% and plunging currency, now almost at 75 level against the US
dollar.
As elections
are coming, various state governments as-well-as the Federal government is busy with political populism rather than
fiscal discipline, which would be negative for India’s combined fiscal deficit, now above 6.50%. If we consider unpaid food, oil, and some other subsidies,
India’s Federal fiscal deficit would be much more than the 3.5% figure.
But the market is getting some support on Thursday
as oil slips on general “risk-off” sentiment, subdued demand forecast by IEA
and surprised API inventory buildup.
Updated: 09:45
Nifty-SGX-NF:
10200 (-270; -2.53%)
Bank
Nifty-BNF: 24700 (-600; -2.39%)
USDINR-I:
74.53 (+0.15.; +0.22%)
SPX-500: 2758 (-23; -0.83%)
Fut-I (Key Technical Levels)
Support for NF:
10140/10095*-10000/9950*-9850/9700-9650/9600-9550/9450
Resistance to NF:
10275/10335*-10390/10425*-10485/10515-10560/10580-10640/10675
Support for BNF:
24650/24400*-24200*/24100-24000/23900-23800/23650-23600/23300
Resistance to BNF:
24800/25050*-25200*/25300-25400/25575-25675/25750-25875/26050
Support for USDINR-I:
73.45/73.00*-72.75/72.25-72.00/71.50-71.25/70.95-70.70/70.35
Resistance to USDINR-I:
74.05/74.25-74.50/75.00-75.65/76.00-76.55/77.00-77.50/79.70
Support for SPX-500:
2745/2715*-2690*/2675-2650/2620-2600/2580-2550/2535
Resistance to SPX-500:
2775/2790*-2815/2840*-2875/2890-2905/2925-2945/2960
Technical
View (Nifty, Bank Nifty, USDINR-I, SPX-500):
Technically, Nifty Fut-I (NF) has to sustain over 10275 for a
further rally to 10335/10390-10425/10485-10515/10560-10580/10640 in the near
term (under bullish case scenario).
On the flip side, sustaining below 10255-10190 NF may fall to 10140/10095-10000/9950-9850/9700-9650/9600
in the near term (under bear case scenario).
Technically, Bank Nifty Fut-I (BNF) has to sustain over 24800
for a further rally to 25050/25200-25300/25400-25575/25675-25750/25875 in the near term (under
bullish case scenario).
On the flip side, sustaining below 24750 BNF may fall to 24650/24400-24200/24100-24000/23900-23800/23650
in the near term (under bear case scenario).
Technically, USDINR-I has to sustain over 73.00-73.45 for a
further rally to 74.05/74.25-74.50/75.00-75.65/76.00-76.55/77.00-77.50/79.70
in the near term (under bullish case
scenario).
On the flip side, sustaining below 72.75-72.25, USDINR-I may fall to 72.00/71.50-71.25/70.95-70.70/70.35
in the near term (under bear case scenario).
Technically,
SPX-500 has to sustain over SPX-500 has to sustain over 2790 for a
further rally to 2815/2840*-2875/2890-2905/2925-2945/2960 in the near term
(under bullish case scenario).
On the flip side, sustaining below 2775,
SPX-500 may fall to 2745/2715-2690*/2675-2650/2620-2600/2580 in the near term (under bear case
scenario).
Valuation metrics:
Nifty-50: 10200; Q4FY18 EPS: 402; Q4FY18 PE: 25.37;
Avg FWD PE: 20; Proj FY-19 EPS: 425-450; Proj Fair Value: 8500-9000
Bank Nifty: 24600; Q4FY18 EPS: 519; Q4FY18 PE:
47.40; Avg FWD PE: 20; Proj FY-19 EPS: 961-1000; Proj Fair Value: 19220-20000
(assuming NPA recovery).
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NIFTY FUT
BANK NIFTY FUT
SPX-500
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