Nifty closed the eventful week almost 2% higher marked by P-Notes FNO forced short covering and an apparent dovish Fed; what’s next?
Market Wrap: 14/07/2017 (17:00)
NSE-NF (July): 9903 (+16; +0.16%) (TTM PE: 25.03; Near 2 SD of 25; Avg PE: 18; TTM EPS: 395; NS: 9886)
NSE-BNF (July): 23970 (+91; +0.38%) (TTM PE: 30.11; Near 3 SD of 30; Avg PE: 20 TTM EPS: 795; BNS: 23938)
Key support for NF: 9855-9790
Key resistance for NF: 9930-9975
Key support for BNF: 23950-23750
Key resistance for BNF: 24000-24115
Time & Price action suggests that, NF has to sustain over 9930 area for further rally towards 9975-10050 & 10100-10195 in the short term (under bullish case scenario).
On the flip side, sustaining below 9910 area, NF may fall towards 9855-9790 & 9715-9670 area in the short term (under bear case scenario).
Similarly, BNF has to sustain over 24000 area for further rally towards 24115-24250 & 24250-24450 area in the near term (under bullish case scenario).
On the flip side, sustaining below 23950 area, BNF may fall towards 23750-23600 & 23500-23300 area in the near term (under bear case scenario).
Nifty Fut (July) today closed around 9903, almost flat (+0.15%) after making an opening minutes high of around 9907 and day low of 9858.Indian market today opened around 9907, almost 22 points up tracking mixed global cues and in line with estimate but surprise in guidance report card from Infy. But, it could not hold the opening gains as long unwinding soon kicked on as Nifty conquered the 9900 milestone and valuations are also quite stretched at Nifty TTM PE around 25.
But the Indian market today also rebounded from the day low after plunge in WPI, which may again spur the rate cut hopes by the RBI and it gained more momentum after some reports of Govt extending more sops to the export sector amid ongoing strength in INR and some report of optimism over Indian economy, political stability and Govt’s ongoing effort of incremental reform may have boosted the sentiment, prompting for more forced P-Note FNO short covering and some value buying.
A recent survey showed that almost 73% of Indian public trust their Govt, which is highest in the world now; i.e. India may be the most politically stable democracy as of now.
Also, some report that ECB may not inclined to specify its QE tapering date may have boosted the EM market sentiment, including India towards closing session.
Most of the Asian markets were trading almost flat today tracking subdued global/Asian cues after tepid GDP forecast of China by Fitch in the morning today. Although, Fitch has affirmed China’s rating at A+ with stable outlook, it has downgraded the GDP to 6.5% in 2017 & 5.9% in 2018, citing tighter monetary conditions. Overall, China is stable due to the strength of its external fiancés and macroeconomic track record.
Overnight US market (DJ-30) also closed almost flat (+0.10%) amid mixed PPI data and QT & valuation concern by ECB & Fed.; but supported by Banks & Financials and also retails (consumption) stocks amid optimistic sales figures ahead of key earnings today.
As par reports, Draghi may appear in the Aug Jackson Hall meet and signal the QE tapering of ECB in 2018; thus it may be a co-ordinated QT move by Fed & ECB and subsequently all the other major G-10 central Banks including BOJ & BOE may also join; BOC has already hiked by 0.25% day before yesterday after 2010 and may further hikes in 2017-18.
Also, as par some reports, BOJ may downgrade its inflation target in its forthcoming meet on 20th July and thus it may also be preparing for an eventual QT just to follow the Fed to keep the parity between JPY & USD at present ideal level.
US market yesterday also came under some stress after Yellen sounded less dovish in her 2nd day of testimony and another influential Fed member (Brainerd) again commented about stretched valuation of US equity assets. All eyes now may be on the US CPI report today after mixed PPI report yesterday as subdued inflation may be the prime concern for Fed now to hike further in 2017; although it may start the QE tapering from Sep’17 itself.
Back to home, although Indian market (Nifty/India-50) is now eyeing for the 10k Mt’ Everest, valuations may be already quite stretched and the Q1FY18 earnings may not help much this time also. There are various disturbing signs that Indian/Global bull market cycle may be at its peak and going forward subdued earnings, QT chorus by global central banks and growing US political jitters (high probability of a Trump impeachment) & poor visibility of Trumponomics might be some of the triggers for downside.
After yesterday’s tepid earnings from TCS, today’s report card from INFY may also be termed as subdued or just in line with market expectations except some surprised upgrade guidance of 1-2%; but Infy could not hold its initial gain and closed in negative (-0.51%) after fine prints of the report card shows some red flags despite a an apparent relaxed management.
There was also some unconfirmed report that SEBI may take pre-cautionary action against the new listings (IPO), which are quite volatile in nature and keep those stocks in the T2T segment; i.e. compulsory delivery with no intra speculation. All such scrips today crashed and may have also affected the overall market sentiment (AU Small Fin, CDSL, HUDCO, Avenue Supermart, Eris & Tejas).
Meanwhile, India’s WPI inflation for June flashed as 0.90% against estimate of 1.60% (prior: 2.17%); although this may be an effect of favourable base effect, the subdued WPI (PPI) may be also indicating some contraction in economic activity and tepid underlying demand.
In India, a lower CPI is good news as it may provide the central Bank to cut the high interest rate regime, which may be a legacy issue; but concern of deflation and lower growth (GDP) may also be looming in.
Looking ahead, Nifty Fut (July) has to sustain over 9930 for further rally to the 10k Mt’ Everest; otherwise there may be some time & price correction.
Today Nifty was supported by Pharma, Oil & Gas but dragged by IT & Auto stocks.
Meanwhile, India’s Trade Balance for flashed as $12.96 bln against estimate of 12.50 (prior: 13.84 bln) and exports growth slows in June on MOM basis. Exports grew at 4.4% to $23.56 bln in June on YOY basis, but the growth slows from May (+8.3% rise). Imports jumped by 19% to $36.52 bln on account of surge in import in Gold ahead of GST tax increase.
The slower export growth in June may be a result of strong INR and subdued demand for Indian goods in the international market.
Elsewhere, Australia (ASX-200) closed around 5751, up by almost 0.20%, but off the day highs, tracking strong AUDUSD and subdued China GDP forecast by Fitch.
Japan (Nikkei-225) also closed almost flat (+0.09%) at around 20120 amid some pullback in Yen after mixed US PPI data and some optimistic tones from Yellen yesterday; USDJPY got some strength yesterday.
China (SSE) was also flat around 3215 (-0.09%) on subdued GDP forecast by Fitch and on apprehensions of some restructuring about its financial system. Hong Kong (HKG-233) is also almost flat around 26365.00.
Today commodity currencies (NZD/AUD) are also gaining strength after BOC hiked after 7 years and amongst the 1st in the G-10 central Banks apart from Fed; market may be expecting similar rate hike action from RBA & RBNZ in the months ahead; NZX-50 today rose by around 0.4%. South Korean market (Kospi) today added 0.2% amid record closing highs.
Oil (WTI) is also almost flat around 46.05, tracking OPEC squabbling and subdued forecast of demand & supply rebalancing ahead of Baker Hughes Oil Rigs figure later today; of late Oil bulls may be concerned about increasing crude Oil (US shale) production despite surprised drawdown.
Technically, Oil is now required to sustain above 46.55-46.75 zone for next leg of rally towards 47.30-47.50 & 48.30-50.00 zone; otherwise it may fall again and sustaining below 45.40-45.00, may further fall towards 43.70-42.00 handle in the coming days.
Gold on the other hand is now trading around 1218, almost flat (+0.04%), but off the recent low of 1204.62 after Yellen sounds less hawkish (dovish) in her 1st testimony. Although Gold is a victim central Bank jawboning and a high probable QT along with a global environment of subdued inflation despite unlimited QQE, it’s being supported by ongoing geo-political jitters and appeal of a safe haven hard asset at time of crisis. Also, eternal physical demand from India, China & other SE countries may be supporting the Yellow metal.
In a country like India, with little financial literacy among the common people, Gold is the most preferred mode of investments among masses. Also, Gold is being treated here as a “family silver” and a necessity requirements for marriage & some religious places/functions and together with that, steady demand from the so called “black money” holders are also supporting the physical demand from India despite Govt effort of DeMo to curb the use of Gold.
Looking at the chart, Gold now need to sustain above 1225-1235 zone for any further recovery to 1245-1260 area; otherwise, sustaining below 1214, it may again fall to 1205-1195 & 1175-1160 zone in the coming days amid increasing QT chorus by global central Banks (Fed/ECB).
Elsewhere, European market is now trading in slight red as EUR jumped on ECB QE tapering buzz and fall in USD after tepid CPI & Retail sales report. Also, some adverse report about Trump’s alleged Russian connection and his knowledge about the meeting between his son & the Russian lawyer may have dampened the overall risk-on sentiment. Banks & financials are in pressure after disappointed result from some big banks like JPM.
FTSE is now trading around 7405 (-0.12%) on strength in GBP and pressure on Pharma space (Astra).
DAX-30 is now around 12590, down by 0.38% on strength of EUR; similarly CAC-40 & MIB-40 are also down by 0.36% & 0.55% as of now.
Meanwhile, GBPUSD is now blasting around 1.3060, up by almost 0.90% after reports that UK may admit the demand of Brexit divorce fees of $114 bln, which was a major hurdle for a meaningful Brexit negotiation along with other issues like EU citizens, EU Court of Justice jurisdiction and Ireland border. Thus, probability of a smooth or so called soft Brexit has brightened and GBPUSD is getting strength apart from the factor of tepid US economic data today (fall in USD across the board).
Also, from the ongoing hawkish tunes from various BOE/MPC members may be indicating that despite significant UK political & Brexit uncertainty, BOE may be forced to follow the QT path of Fed/BOC/ECB and thus GBP is getting more boost.
Looking at the chart, GBPUSD now has to sustain over 1.30905 for further rally towards 1.3105-1.32850 & 1.34355/845-1.35295; otherwise, sustaining below 1.30525-1.30485, it may fall again towards 1.29180-1.28310 in the coming days.
SPX-500 Jumped To 2450 & USDJPY Almost Slumped To 112 After Tepid US Economic Data:
After tepid US economic data today SPX-500 (US-500) rallied to almost 2450 and USDJPY slumped to 112.27 on the perception that Fed may not hike even in Dec’17; thus combination of higher US growth and lower rates may help US corporates and equities; i.e. it may be a goldilocks situation for US stock market right now with dovish Fed.
Today’s US economic data (June):
Core CPI-MOM: 0.1 %( EST: 0.2%; PRIOR: 0.1%)
Core CPI-YOY: 1.7% (EST: 1.7%; PRIOR: 1.7%)
CPI-MOM: 0.0% (EST: 0.1%; PRIOR: -0.1%)
CPI-YOY: 1,6% (EST: 1.7%; PRIOR: 1.9%)
CORE Retail Sales-MOM: -0.2% (EST: 0.2%; PRIOR: -0.3%)
Retail Sales-MOM: -0.2% (EST: 0.1%; PRIOR: -0.1%-R)
IIP-MOM: 0.4% (EST: 0.3%; PRIOR: 0.1%)
U-MICH Cons-Sentiment: 93.1 (EST: 95; PRIOR: 95.1)
Overall, on headline basis, US CPI & Retail sales flashed very subdued and may force Fed to stay on the side line at least till Dec’17; but closer scrutiny may reveal that wage component (Avg. weekly & hourly earnings) has increased (+1.1% & +0.8% against prior 0.6%) and that may give Fed some confidence going forward.
In any way, it’s now very clear that after three hikes in the last six months or two hikes in 2017 against original projection of three hikes (dot-plots), Fed may not show any urgency for the 3rd hike immediately, even if today’s CPI data came blockbuster.
In lieu of rate hike, Fed may now focus on its QE tapering from Sep’17 and thus it may wait patiently till Dec’17 to watch both the trajectory of US inflation and the effect of its QE tapering on the US economy & the market and depending on that it will decide for its next rate hike either in Dec’17 or in 2018. As of now, market may be expecting total 3 hikes in between Dec’17 to Dec’18.
Looking ahead, a definitive QE tapering plan from Fed (quantum & time) may give support to the USD; as of now, market may be assuming $10 bln/pm QE tapering from Sep’17 onwards for the first 6 months with another rate hike of 0.25% and thereafter tapering may be increased up to $50 bln/pm from Q2CY18, if everything is fine until a reasonable B/S size is achieved (total QE bond holding may be around $3.5 tln against the overall B/S size of $4.5 tln).
Looking ahead, for next leg of rally, SPX-500 may need to sustain above the 2455 area for 2495-2505 zone; otherwise it may come down. For USDJPY, 112.00-111.60/40 area may be the hopes for the USD bulls now. Ongoing US political jitters regarding Trump’s Russian connection may take serious turn in the days ahead and that may be bad for both USD & US/global stock market (risk assets).