Nifty Gave A Thumping Rally Inspired By Fed Induced "Risk On" Mode----Will It Last ?

Nifty Fut (Sep) today closed around 8878 (+0.81%) after a Fed inspired gap up opening session high of 8918 and day low of 8861.

Looking ahead, for tomorrow (22/09/2016), NF has to sustain over 8925-8975* zone for further rally up to 8995/9005-9075*-9185/9205 zone in the near term.

On the other side, sustaining below 8865-8845* area, NF may fall towards 8795/55*-8705-8655/25 zone in the short term.

From yesterday's BOJ & Fed stance, it seems that market (risk assets) are happy with Fed for the time being, but somewhat confused over BOJ's latest stance of QQE-YCC (quantitative & qualitative easing with yield curve control). 

Some analysts are also dubbing this (QQE-YCC) as BOJ's attempt for a slow backdoor tapering or "stealth tapering". Global market is still in doubt over BOJ's capability to steepen the 10YJGB bond yield, stimulate some inflation in the economy and at the same time depreciate Yen. Some are also apprehending the latest attempt of BOJ as monetization of Govt debt and an indication of BOJ's limitations.

Also, yesterday's Yellen presser (Q&A session) may be indicating that she is a reluctant (confused) "hawk" and it was her tone of indecisiveness has prompted the broad based USD selling and carry trade got a boost among high yielding commodity currencies, resulting in an overall "risk on" mode.

It also appears that Fed is moving as par geo-political events rather than pure economics. Fed may be also concerned for the US (Presidential election) as well as on the global front (Brexit, Italian referendum & EU/China banking woes) and is itself confused about any definitive forward guidance. Its also slashed projected US GDP growth, unemployment rate and PCE(inflation expectation) for 2017-18, which may also be an indication of its lack of confidence on the US economy itself.

As US election is getting nearer, Fed will not "disturb" the stock market and in that sense, Fed's current "dovish hold" stance was also highly anticipated.

But, more than the question of a symbolic Fed hike, market & US politics may now focus on the core economy of US and going forward, "main street" will decide the next US President rather than the "wall street". Thus, next driver of the global market may be the US election and the forthcoming series of Presidential debates.

As par some analysis, if one considers the falling participation rate wrt 2008-09 level, then the true unemployment rate may be around at least 2% higher from the present rate of 4.9% in US. A significant number of people are now out of work force because of lack of necessary skills, automation & artificial intelligence and also lack of adequate employment opportunities. Fed may be also fully aware of that and thus repeatedly asking for Govt sponsored fiscal & structural measures rather than relying only of monetary stimulus. This may also partly explain the huge response that Trump is getting now despite portrayed as a likely source of disruption.

Thus rather than Fed rate hike "risk" in Dec, US election may be be the main driver of the US as well as global market in the near term.

So, in Dec, Fed will hike if Trump does not win and will not hike, if Trump wins. Both are negative for "risk assets".

Apart from the US election risk, China's Yuan inclusion in the SDR basket on 1-st Oct may also be keenly watched.

Back to the Indian market, it opened gap up as expected following Fed tunes, but could not hold the initial buzz as immediate profit booking came (long unwinding or fresh shorts).

Yesterday, India for the 1-st time in nine years reported current account surplus (as expected). Although, it may be a great news, it may also indicating tepid economic activity both in import & export front and lack of private investments.

Today, GST council are scheduled to meet officially for the 1-st time after the recent GST amendment bill and as par some reports there may be significant difference among states and the centre for setting up of final GST rate (RNR) and some other administrative procedures. 

Also, there is a buzz by one of the BJP/RSS's own member (SS) to dissolute the present GSTN company being a JV between the Govt and some private companies having significant foreign owner ships to form a 100% Govt owned co for the same and a PIL is pending before the SC questioning some points about the GST.

As par some early indication, GST-RNR may be 20% against earlier estimate for 18% (slightly negative to neutral for the market sentiment).

Any indication that its not possible to roll out GST by April'17 for any reasons (political or administrative) may be negative for Indian market in the near term.

All eyes will be also on 4-th Oct for RBI policy meet. Although, there is virtually no hope for any rate cut this time, some section of the market are also looking for a 0.25% "Diwali Gift" by the new RBI Gov/MPC as CPI suddenly fall to 5.05% and Fed is also on hold, at least till Dec. 

But, RBI may focus on the forthcoming FCNR redemption (around $15 bln) and Fed's actual rate hike scenario in Dec to take a call in Feb'17 (just after Budget). Divergent rate action between Fed & RBI may affect present interest rate differential and Indian bond yields. 

Also, RBI may give more thrust on the full transmission of the previous rate cuts by the banks and proper resolution of the stressed assets in the Indian banking system (specially PSBS). After all, if Banks are unable to pass on the previous 1.50% repo rate cuts by the RBI, then what will be the benefit of such cuts in future ?

Incidentally, IMD today said that overall monsoon this year is still 5% and due to current excessive rains in some parts of the country (Mumbai/Raigarh/AP), it may end up with 2-3% deficient this time against earlier projection of 5-6% above LPA & then normal. 

At around 9000 Nifty, TTM PE may be around 24.65 and that may be most expensive among the EM peers.

Stock specifically, today Auro Pharma rallied significantly after it got US FDA approval for an anti-HIV drug.

Sector wise, banks, infra, oil& gas supported the market today, while IT drags it to some extent.

SGX-NIFTY

Nifty Fut (Sep): Need To Sustain Over 8925-8975 Area For 9075-9200 Despite Fed's "Dovish Hold" Stance

Nifty Fut will open around 8900, gap up by almost 80 points after Fed inspired rally in overnight US mkt.

Yesterday, as expected Fed stands pat, but with a some what dovish stance with lots of caveats about probable Dec hike. So the present stance may be termed as dovish hold rather than a hawkish one.

Going forward, Fed will keenly watch US job data and various other incoming economic data and depending upon that it may raise in Dec, only if there is no internal or external shock.

Fed has also downgraded US GDP projection and Inflation/Core PCE expectation. It has projected 1 & 2 hike in 2016 & 2017.

Overall it seems that Fed is influenced more by geo-political events rather than pure text book economics and it may also reflecting it's lack of confidence on US as well as global economy. As par its own dot plots, it's credibility may be at stake despite its continuous verbal intervention. 

Indian mkt will play today as par the global tunes in the absence of any immediate meaningful domestic cues.

Technically, NF has to sustain over 8925-8975* area for an immediate target of 9005/9025-9075*-9125-9185 zone.

On the downside, sustaining below 8875*-8855 area, NF may try to catch 8800-8780*-8735 area for the day.

 NIFTY FUT(SEP)

Nifty Sold Off From High And Closed Flat As Global Market Not Impressed By BOJ's New Yield Targeting Stance Ahead Of Fed Day

Nifty Fut (Sep) today closed around 8807 (absolute flat) after initial BOJ inspired rally up to 8857 and late day selling low of 8785.

Technically for tomorrow (21/09/2016), sustaining below 8780* area, NF may fall towards 8735/05-8665/45*-8570/40 zone immediately.

On the other side, sustaining above 8825* area, NF may again rally up to 8875*-8905/25-8975/95 zone for the day.

Soon after Indian market opened today, BOJ unleash their much speculated "Bazooka", but at the end it eventually turns out to be a "water pistol" as USDJPY not even rallied by 100 pips and gradually returned to the Pre-BOJ level of around 102.

Some section of the market was expecting that BOJ may cut deposit rate to further negative (-)0.2% from the present (-)0.1% along with some tweaking in JGB buying in order to steepen the yield curve and stimulate the Japanese economy and combat deflation.

But, BOJ only took the yield targeting measure leaving the deposit rate unchanged. Now, BOJ may target 10Y JGB bond yields by unlimited amount to keep it above 0% and gradually shifting from the present bond buying.

The present focus on yield targeting in lieu of NIRP may be an indication that BOJ's past policy is not working to spur business lending as banks & financial institutions are themselves suffering from the negative JGB yields and not in a position to lend excessively.

By today's policy, BOJ may be trying to support the bank's NIM (as Japanese banks usually borrow in the short bond end and lend in the long end) and rectifying its past mistakes of NIRP, which pushed the 10Y JGB bond below 0% into negative territory (still its now around -0.025% after making an BOJ inspired rally up to 0.005%).

Although, BOJ makes it clear about its intention for positive 10Y JGB bond yield, market is not so much impressed and in some types of confusion about BOJ's ability to actually do that, because in the global era of currency war, BOJ is not alone; other central bank's policy is equally important.

Today's Fed stance/forward guidance may help to clear this doubt as its almost certain that Fed will not move/hike today at any cost just months before US election. 

The market will focus on the forward guidance of Fed. Any clear indication by Fed that it will raise rate on Dec may help BOJ to some extent. But considering the various aspects like probabilities of "Trumpism", "Real Brexit" and EU/China banking crisis, Yellen may take a "hawkish hold" stance tonight with lots of caveats with no clear cut commitments about a definitive rate hike in Dec'16 also. That should cause some rally in USDJPY.

As of now USDJPY and positive bond yields are both directly divergent to risk assets by some extent. 

Back to Indian market, in the absence of any meaningful cues Nifty may be also dancing to the global tunes of Fed & BOJ. 

After this "week of central banks", Indian market may focus on RBI meet, ongoing progress of GST & early FY-18 general budget preparations, Q2F1Y17 result season, incremental economic/structural reforms by the Govt, Indo-Pak geo-political tension and trend of consumer spending in the forthcoming festival season.

Today Govt announced the much anticipated merger of general & RLY budget and the same will be likely presented on 1-st Feb'2017. Thus budget preparation will soon start after Sep-Oct this year and in that scenario, nationwide roll out of GST from April'17 may be quite challenging too.

Overall, as there are lots of confusion because of Fed uncertainty about forward guidance, we should follow technicals more as mentioned above for the Nifty Fut levels for an overall direction of the market.

SGX-NIFTY

Nifty Snapped 4 Day Rally In A Range Bound Market Ahead Of BOJ & Fed

Nifty Fut (Sep) today closed around 8803 (-0.33%) in a range bound trade after opening gap down. Today's day high & low was around 8820 & 8786.

Looking ahead, for tomorrow (21/09/2016), sustaining below 8785 area, NF may fall towards 8735/8705-8665/35*-8570/40 zone immediately.

On the other side, sustaining above 8825 area, NF may further rally towards 8875*-8905/25-8975/95 zone for the day.

Yesterday, US market fall in the late trade and closed almost flat despite trading higher earlier in the Asian & European session as market participants choose to curtail positions ahead of Fed & BOJ.

Oil got some support early yesterday as there was some renewed optimism about OPEC/Non-OPEC production freeze and geo-political tension in Libya and Nigeria.

In the absence of any meaningful cues domestically, Indian mkt may also dancing with the global tunes as of now. 

Any definitive indication of Dec hike by Fed tomorrow; i.e. extreme "hawkish hold" stance and along with that hawkish or even neutral BOJ may make global as well as Indian market extremely volatile in the coming days.

Rather than Fed, BOJ announcement tomorrow morning around the Indian market opening time may be more important as its almost certain that Fed is not going to hike immediately leaving the door open for the Dec with a bit hawkish guidance in order to make everything in balance just before US presidential election in Nov. FFR is now indicating probability of Sep hike as around 22% and Dec hike around 59%.

BOJ, on the other hand is expected to slash rate further to (-)0.2% from the present (-)0.1% with some reverse twist to steepen the yields of JGB bond in the long end, keeping the short end bond unchanged; i.e BOJ may take the NIRP route more proactively instead of its present strategy of bond buying @80 tln Yen per year as it is increasingly difficult to buy eligible bonds and ETF buying is also causing some stock market bubble. BOJ may thus announce some type of tapering to the tune of 10 tln Yen per month in the present bond buying programme. 

Alternately, due to time difference with the Fed meet, BOJ may simply be in the sideline with a message for some action in the coming months as it want to see some result for the previous/ongoing QQE.

Overall global market is worried by some extent as central bankers seems to be increasingly out of ammunition and basically pleading for more Govt fiscal & structural measures.

After all, with so much monetary stimulus for more than decades, although Wall Street (stock market) has significant "inflation" (elevated asset price), inflation is virtually no where in the "Real Street" (real economy) as all the liquidity may be finding its way to the wall street rather than the real street.

In that sense, QQE (easy money) has so far failed to create any meaningful consumer demand and in contrast helped to create substantial supplies by creating overnight zombie companies which are responsible for the present mismatch in supply & demand (e.g. for Oil, Steel etc).

Domestically, all eyes will be on the progress of GST and Indo- Pak geo-political tension, Q2FY17 result and FY-18 budget talks in the coming days apart from the global event (Fed/BOJ/China credit concern etc).

There was also a report yesterday that at present our PM enjoying nearly 80% approval rate despite some pessimism about slow progress of vital reform and some other issues.

Although the approval level of NAMO was around 87% last year, this may support the positive sentiment about Indian mkt having political stability and appeal of demography, democracy & development in the long run.

As par some report, PM has given final authority to the army for an appropriate response to Pak for the URI terrorist incident. Although, Indian Army indicated that they are not in a hurry and will response at an appropriate time & place, market is worried to some extent for the ongoing Indo-Pak geo-political tension ahead of UP state election. At present, Govt is apparently taking some diplomatic steps to isolate Pak with the rest of the world and testing some mid-range missile frequently to put pressure on the US to persuade Pak not to allow any terrorist organization to use its soil. Being in the election year, US will never allow an immediate or even future conflict between the two nuclear nations.

Today, although Moody's has praised various incremental reform in India, it may be in no hurry to upgrade the rating in the near future owing to the problem of twin balance sheets & tepid private investments in the country.

Also as par some reports, Q1FY17 direct tax collection growth was below estimate primarily because of PSBS & ONGC (one time). Incidentally, Moody's also expressed some concern over the current fiscal deficit figure as it is already reached around 74% last month. As such, we may see some slowdown in the Govt capex for the H2FY17.

Quite surprisingly, Jubilant Food CEO & CFO resigned from the company after selling substantial stake in the last few months. As its an expensive scrip in the mid-cap category, this may also affect the "mid-cap frenzy" sentiment in the coming days.

Today Nifty was supported by ONGC (better GRM out look), Metals (Tata Steel/Hindalco for Govt plan of additional import duty), Infratel, Pharma scrips (Cipla/Lupin etc as US FDA fiasco may be bottoming out), Yes Bank (short covering ??).

Nifty was mainly dragged by RIL, ITC, SBI, Hero Motors, Adani Ports (Australian coal mine buy), Infy, Tata Motors (JLR recall in US) and cement scrips.

SGX-NF

Nifty Closed Almost Flat Amid Positive Global Cues As Dollar Dumped Ahead Of Fed & BOJ

Nifty Fut (Sep) today closed around 8830 (+0.25%) after trading in a very tight range and made a day high of 8848 and opening session low of 8799.

Looking at the chart, for tomorrow (20/09/16), NF has to sustain over 8855-8875* area for target of 8905/25-8975 & 9005/25-9075*-9125 zone.

On the other side, sustaining below 8805-8785* area, NF may fall towards 8745-8705*-8665/35 zone immediately.

As Japan is closed today, there was not so much cues in the early Asian session. China opened today after successive holidays; although there was no major news, HIBOR strengthen quite significantly today, which may be an initial indication of probable Yuan devaluation by PBOC or it may be simply a liquidity management effort by China after a long holiday.

On Friday, US market was down to some extent, after better than expected CPI data as this may translate a Hawkish Hold stance for Fed on Wednesday and probable rate hike in Dec. 

Rather than Fed, BOJ stance may be more vital because of various speculation about their plan.As par some reports, BOJ may cut to (-) 0.2% from the present (-) 0.1% with some modification of the present bond buying operation in order the steepen the long end bond yields. Another version is that, BOJ may do nothing and will wait for Fed's stance before any actual move on Oct-Nov.

As par some market talk, ECB may be also in the side line till Dec'16 in order to see the effect of its previous stimulus. BOE may also not move this year as it will keenly watch the actual process of "Brexit" as UK is ready to invoke article-50 by early 2017 and to snap the present trade agreements with the EU nations keeping an anti-immigration stance.

Ahead of Fed & BOJ, global market dumped some long USD position and that helped the "risk on" sentiment today.

Oil was also supported earlier by some renewed optimism about OPEC talk of production freeze and geo-political tension in Libya & Nigeria.

In UK, sentiment was further soured after comments by German FM that Britain will loose its financial passporting rights if it leaves European Economic Area (EEA). This is important because these are tied to the UK's ability to conduct business across EU and may force many UK/London based firms to move elsewhere. 

No doubt, after few months of calm, "Real Brexit" concerns are again hitting the headlines and Brexit woes may be far from over. 

Indian market was also opened in positive territory today following supportive global cues.

There was another report yesterday that Govt may go ahead with multiple rates of GST as of now instead of a single RNR. Although, final outcome will be decided by the GST comm, any abbreviation of the true theme of GST may not serve any purpose on the overall economy in the near term.

Also, there was some question about excise duty related law point in the new GST draft and Fin Secretary is expected to clarify that tomorrow.

Market will also watch any geo-political tension between India & Pak following yesterday's hilarious terrorist attack in Uri, where 18 Indian soldiers has been killed. But, at this point of time, any scope of serious retaliation by India may be very limited for various reasons. Govt may diplomatically try to corner Pak rather than any immediate stern military action.

Today PSBS were under some pressure for FM's comments about recapitalization constraint and Moody's concern about stressed assets, although it may be bottoming out.

As par latest report, Indian Banks has now stressed assets of around Rs.8 lac cr (as on Q1FY17). As par various estimates, the same is expected to reach to around Rs.11-15 lac cr by FY-17.

Today, Nifty was supported by RIL (telecom play & CLSA upgrade), Indusind Bank, Auro Pharma (completion of US FDA audit in its two plants), Infy & TCS (inorganic expansion buzz & temporary relief from higher US HIB visa costs), cement & metal counters.

Nifty was dragged by Maruti (stronger Yen) and other Autos (profit booking), Axis Bank (ARC stake buy from IFCI and revision of MCLR) & ITC.

As par some report, Q1FY17 EPS of Nifty grew by around 3% (YOY) and this trend of tepid growth may continue in Q2FY17 also. Its only in the H2FY17, we can see some modest growth in Nifty EPS supported by good monsoon, incremental consumer demand (7-CPC), incremental policy reforms and transmission of rate cuts (benign interest rate) and in that scenario, FY-17 Nifty target may be around 9600.

But, at present 9000 level, TTM PE (FY-16) of Nifty may be around 24.65 (EPS:365). If we assume 18% CAGR for FY-17, then EPS may come to around 431. A historical average PE multiple of 16-20 indicate that in that scenario, fair value of Nifty may be around 6900-8600by FY:17-18.

Its true that in a liquidity driven rally ("hunt for yields"), PE multiple does not matter, but when the liquidity tap beginning to dry up. it will matter and history suggests that when ever Nifty has gone towards 24-25 PE multiple, it has undergone significant correction in the following 2-3 years.

Sep-Dec'16 period may be double whammy for Fed as it has to hike by Dec, if Clinton wins. If Fed does not hike in Dec despite Clinton win, then it may also be dubbed as "lack of confidence" of Fed on the US as well as global economy.

If Trump win, Fed has to be in the side line for 2017 also or forever and both may be bad for "risk trade". It may be a real catch-22 situation for Fed in the coming months.

SGX-NIFTY

Nifty Slides From Day High Amid Liquidity Fear Of Deutsche Bank & Comments Of FM And Closed Almost 1% Lower For The Week---What's Next ?

Nifty Fut (Sep) today (16/09/16) closed around 8809 (+0.40%) after making a day high of 8879 and last hour session low of 8769. With this, Nifty closed the week almost 1% lower, down on a weekly basis after many weeks.

Technically, now sustaining below 8825-8750* area, NF may fall further towards 8705-8665/30*-8575/45 in the immediate to short term.

For any strength, NF has to sustain above 8875-8905* area for further rally towards 8975-9025-9075* zone in the immediate to short term.

Today Nifty Fut opened gap up by around 26 points following overnight rally (1%) of the US market and soon after that broad based buying (short covering) took it sharply higher at around 8879.

But suddenly after EU market opens, there was some reports about Deutsche Bank (DB) that DOJ (US Department Of Justice) has slapped a fine of $14 bln on it (DB) in the mortgage case related to 2007-08 period (US housing crisis and CD related issues). 

As DB was already under pressure for various other issues like reported $40 tln derivative exposoure, NPA/stressed assets etc and one of the defaulting candidate in the European banking space, this news of $14 bln fine sent the scrip by almost 8% down and also soured the global market sentiment. 

European banks were also under pressure and another defaulting candidate Monte Paschi of Italy was also down by almost 7%.

Although, DB will contest this huge fine of $14 bln with the US DOJ, even if 50% of the amount will be highest fine in the recent history and can impair the liquidity of the German Bank. As par some estimate, anything above $10 bln may force the bank to default on its forthcoming bond redemption or delay the interest payment commitment.

Although, being "too big to fall", German Govt/EU will not allow DB to default & fall like Lehman Brothers in any circumstances, this news is certainly negative for the overall global market.

Global market is also come under another pressure after GS downgraded S&P-500 & Stoxx-600 citing "elevated valuations and the risk of shocks".

Yesterday's (15/09/16) overall US economic data (retail sales, IIP etc) were all bad and significantly below market expectation. As a result, Sep rate hike probability virtually doomed and risk assets has a relief rally.

But USD and bond yields has not reacted too much on the downside and on the contrary contrary closed strong. So, currency & bond market has not anticipated any Sep rate hike at all and they are looking for any BOJ action 21-st Sep and ongoing US election cues & Fed hike probability in Dec. 

Technically, unless & until S&P-500 stabilized over 2140-2170 area, the present rally may be a dead cat bounce.

Domestically, India's trade deficit figure again highlighted the tepid trend in the exports and going ahead, the present debate of Rupee devaluation may heats up, considering various pros & cons of the same.

Some of the headwinds for India may be tepid private investments and slow progress of major reforms so far, despite hopes of enhanced rural spending because of good monsoon and consumer spending for the expected 7-CPC induced liquidity.

IT sector was in the limelight today as H1B Visa fees hike bill temporarily halted in US before the election and new decision may be taken only after the election. 

Today, Indian FM has meetings with the PSBS chiefs, but nothing new has emerged from this and FM has also expressed some grave concern about the NPLS/stressed assets of the Indian Banking System and noted that proper resolution is necessary to address the problem of India's Twin Balance Sheet issues.

FM also expressed limitations of more PSBS recapitalisation funds by the Govt at this juncture ( " There are budgetary constraints on recapitalising banks"-FM). This comment by the FM may also help the last hour broad based selling, specially for the PSBS.

Although, Govt is infusing Rs.70000 cr to the ailing PSBS over five years (2015-20) under project "Indradhanush", as par various reports its may be too late & too little. Considering the magnitude of stressed assets and present trend of actual resolution (recovery), PSBS may need at least around Rs.600000 cr by March-2019 (FY-18) to be BASEL-III compliant; otherwise as much as 11 PSBS may fail to meet those norms.  

FM also hoped that the RBI may notice the sudden drop of 1% in Aug CPI and act accordingly (indirect pressure of Oct rate cut ??).

But going by the sharp divergence of CPI & WPI, RBI may not oblige this time for a "Diwali gift to the nation" and may prefer to wait to see the inflation trajectory for the next few months for a probable 0.25% rate cut in Dec'16. 

The new RBI Gov may rather give thrust on the full transmission of previous repo rate cuts and an effective time bound resolution of the NPA mess in its Oct meet. So far Banks has transmitted only around 50-60% of the1.5% RBI rate cut since late 2014.

Also reports that Telecos has submitted bank guarantee for only Rs.15000 cr in the latest telecom spectrum against Govt budgeted estimate for FY-17 as Rs.100000 cr may drag the overall market sentiment to some extent as Govt's ambitious FY-17 fiscal deficit estimate is dependent much on the proceeds from the telecom spectrum auction.

Today Nifty was supported by ITC (positive management commentary and expansion of chocolate confectionery business to malls), Grasim (reported increase in price for its fibre yarns and fund raising plan), BPCL (increase in petrol price), RIL (resolving of various telecom issues ??), Infy (H1B visa bill halted in US & special dividend).

Nifty was dragged by Yes Bank (SEBI investigation and downgrade by UBS), Tata Steel (may not undertake any sale or JV for its UK plants unless & until woes of pension funds resolved).

ICICI Bank also fall from the day high after reported less than estimated advance tax figure.

Wockhardt gained significantly on the report of one of its plant being cleared by US FDA; but later the Co denied any such new information from the US FDA.

Sugar sectors was also in the limelight today as there are reports that production is in the downtrend in Brazil and in India prices may jump towards 50/- a kilo from the the present level of 40/- amid incremental festive demand and supply constraints.

Update overnight US markets & CPI data:

Yesterday's (16/09/16) core CPI data for Aug came at 0.3% (MOM; estimate: 0.2%; prior 0.1%).

On YOY basis it came at 2.3% (against estimate of 2.2%; prior: 2.2%).

The head line CPI numbers are in line or above Fed's projection and as par its own text book, Fed will have to increase rate by Dec'16 and for that FFR is pricing a hawkish comments by Yellen next week for preparing the market for Dec action.

But on closer look, the apparent surge in the headline CPI came on the back of significant inflationary pressure on housing rentals and health care costs and there are no great inflationary pressure on other goods & services. The divergence in core CPI & PCI also suggests this (difference is now 0.7% against the usual 0.3%). 

Fed relies more on core PCI rather than CPI.

Although, recent overall US economic data suggests falling consumer consumption, slower job growth and tepid activity in manufacturing & services sector, expect a slew of positive data in the coming days just before US election and if everything is alright (Clinton do not withdraw herself and wins), Fed will hike in Dec just to ensure that it does not fall behind the curve and there is no further uncertainty about the yearly rate hike plan of Fed by 0.25% each year going ahead.

Looking ahead, global risk assets & bonds also may be under pressure for:

1. Hawkish Fed in order to prepare the market for a probable Dec hike. Fed will never hike unless & until FFR indicates at least 75% probability of rate hike. At present its around 52%.

2. Growing uncertainty about out come of US election. Probability of Trump is getting higher day by day and it may be a close fight this time. Forthcoming series of Presidential debates may further guide the market. Any higher probability for "Trumpism" may be devastating for the global risk assets/financial markets.

3. Concern of "Real Brexit" is getting higher now. As par reports, UK may invoke Article -50 by early next year and ready to give up the EU's single market access and UK bank's crucial access to clients in the EU in order to achieve the objective of the immigration restrictions as par wishes of the voters in the referendum. If UK exit from EU eventually, it may bring more uncertainty and chaos for the whole EU concept and more nations may follow the same to "print & trade" in their own devalued currency rather than whims & fancy of the ECB/EUR. This may be devastating for the risk assets and market is also not prepared for any real exit of UK from the EU.

4. Rather than Fed, BOJ may shock the market in the coming weeks, if they unveiled any plan for current bond buying tapering to steepen the JGB yields for the benefit of the banks & the pension funds. Also, BOJ & ECB are increasingly finding it difficult to buy eligible bonds and in that scenario, they have to invent something new concept like buying ETF (BOJ is already doing that; ECB may follow later) or even foreign bond buying (as BOJ was planning).

5. As market is too much addicted with the unlimited stimulus by the central bankers, any indication of tapering may cause significant panic in the global financial market.

6. It seems that central bankers are increasingly out of effective ammunition to fight the deflation of the real economy and what ever is left, they want to preserve it for a "rainy day". Instead they are increasingly pleading with the Govt for more fiscal measures and structural reforms.

In a bull market, prices often goes up in an elevator (slowly), but goes down in an escalator (swiftly).

   

Nifty Closed Another Flat Day Amid Talk Of Rupee Devaluation And Tepid Global Cues Ahead Of BOE & US Retail Sales

Nifty Fut (Sep) today closed almost flat around 8782 (+0.16%) after a late day recovery (high of 8784) and session low of 8728.

Looking at the chart, for tomorrow (16/09/2016), Nifty Fut has to sustain over 8800-8825* area for further rally up to 8875*-8925-8975/9025 zone.

On the flip side, sustaining below 8785-8745* area, it may again fall towards 8705-8665*-8615/8545 zone.

Today global market was tepid after overnight weak closing of US market amid selling in oil and various BOJ speculation/leaks. 

Yesterday, oil was a big headwind of the mkt. Although, DOE inventory report was supportive, crushing data was above expectation and this may be an indication that more & more supply is coming to the mkt as oil is stabilized in the 40-50$ range.

With Fed is in the black out period, all attention was with the BOJ and their various selective leaks about the probable stance in the next week. Market will be happy if there will be some modification of the current QQE program without any condition; any talk of tapering to steepen the Japanese bond yield curve may be negative for the market. 

Basically, global market is dancing for the last few days in the tune of various BOJ speculation as its now almost certain that Fed will not act in Sep, just before US election (Nov), whatever may be the incoming economic data in US.

As expected, both SNB & BOE came pat today with no policy change and maintain accommodative stance (as expected). But the overall tone of the BOE is not so much dovish as market was expecting. 

As a result of Brexit, GBP is already depreciated significantly (by around 12%) from Pre-Brexit level and together with Post-Brexit QQE by BOE, UK economy has performed quite well, specially in the export front despite some headwinds in the housing market (price falls significantly). Devalued currency (GBP) has helped the UK economy by a great extent contrary to the notion of immediate uncertainty/stability as a result of Brexit referendum.

Going ahead, invocation of Article-50 will be most vital as Germany & other EU officials may not tolerate for long UK's present stance to be officially in the EU taking all the trade advantage and at the same time enjoying the benefit of a weaker currency (GBP). 

Germany may be the biggest looser of Brexit as of now as their export has plummeted significantly due to weaker GBP/export competitiveness of UK. Thus, UK will have to take a definitive decision sooner than later to either stay in EU or exit by 2017-19 and if real Brexit happens, then it will be a acid test for EU concept as more country will try to take the similar path and uncertainty will grip the global financial market. 

Today Indian market opened little gap down, but soon after opening there was some market news that Govt/Commerce Ministry are actively pitching for rupee devaluation by policy changes (??) and planned a meeting with the Finance ministry on 20-th Sep for this issue. Soon after that, USDINR jumped and there was some broad based selling in the market. 

Though, later this rupee devaluation plan was denied by both the Commerce & Finance ministry, some damage was already done (as there is no smoke without fire). Without tacit approval by the PMO, its not possible for the Commerce Ministry to even divulge a rupee devaluation plan intentionally or otherwise, even for the benefit of the slagging export sector.

Actually, it seems that Commerce Ministry is pitching for an overall export oriented package to the PMO comprising of INR devaluation (to compete with other countries in this era of currency war), rationalization of railway freights structure (abolition of cross subsidy concept in Indian Railways), withdrawal of MIP on the steel sector to help the domestic engineering export industry, easy visa regime with reasonable cost etc.

 

As India is an import oriented country, abrupt devaluation of INR may be bad for overall economy except some selected sectors (export oriented: IT, Pharma etc). 

A weak INR may also cause significant headwinds for the Indian Bond market and confidence of the FPIS in the stability of the Indian Rupee may tarnish. 

Also, corporate India are now in a "masala bond" spree, where the currency risk is borne with the bond holders (FPIS/FIIS) and thus any deliberate INR devaluation plan by policy changes (backdoor QE by India ??) may be quite risky as far FPIS are concerned.

Another point is that a devalued Rupee may aid further uptrend in the inflation and thus it may be quite difficult for the RBI for any future rate cut.

Thus India may be facing a double whammy of tepid trend of export and risk of downside of the overall domestic economy if Rupee is devalued significantly. India is basically a service based economy and to transform it to manufacturing based economy like China, it has to export significant manufactured goods beside service (IT). India's share in global trade is now just around 2% and the aim is to increase it to around 3.5% by 2020. Without export competitiveness, India's dream of achieving $10 tln GDP from the present level of $2 tln may be very tough as domestic consumption is not sufficient to fulfill this dream and "Make In India" initiative by the Govt may be in jeopardy also.

Indian market was also supported today by the report that PMO is actively monitoring the progress of GST for a nationwide roll out scheduled for April'17. 

Incidentally, Infy CEO today made a presentation of the GST IT network software to the FM and as par him, its quite challenging to launch a complex GST IT software within such a short period ("GST roll out is a hell of challenge").

Market sentiment was slightly dragged today after reports of deficient rain (4% below LPA as of now against earlier 6% above LPA and normal/at par LPA) this year. 

As par some reports, India may report Q1F17 current A/C surplus after a long period of nine years; while this looks good for our macro, it may also indicate tepid investment and weak export activities. Although Govt capex in infra is encouraging, the much awaited private investments are not happening as expected for various macro economic reasons.

The sharp contrast between the CPI & the WPI is also worrisome and may deter any immediate hope for Oct rate cut.

Today, Nifty was significantly supported by media stocks (buzz of Reliance buying Sun TV with open offer @600/share ??), Bhel, RIL (telecom interconnections by the other operators and INR devaluation Buzz may help its oil export), ITC (positive management commentary), HDFC (above expected advance tax figure).

Nifty was dragged today most by Banks (Oct rate cut hope is diminishing), metals (Chinese holidays & lower demand). Yes bank also fall today again after reports of SEBI investigation about the recent QIP fiasco and stock price volatility. There was also some report about the bank's core operating profit strategy, which is mainly fee based rather than thrust on net interest income and hidden stressed assets.

SGX-NIFTY