Nifty May Open In Deep Green Tracking Positive Global Cues After Yellen Sounds Dovish; Indian Market May Focus On RBI Rate Cut In Aug’17 (?) After Huge Fall In CPI & Q1 Earnings

Market Mantra: 13/07/2017 (08:30)

SGX-NF: 9875 (+46 points)

For the Day:

Key support for NF: 9875-9835

Key resistance for NF: 9930-9975

Key support for BNF: 23600-23500

Key resistance for BNF: 23800-23900

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 9910-9875 area, NF may fall towards 9835-9790 & 9775/9715-9665 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 23800 area for further rally towards 23900-24000 & 24115-24250 area in the near term (under bullish case scenario).

On the flip side, sustaining below 23750 area, BNF may fall towards 23600/23500-23400 & 23300-23000 area in the near term (under bear case scenario).

As par early SGX indication, Nifty Fut (July) may open around 9875, almost 46 points gap up tracking upbeat global cues as market cheers a dovish or rather than a less hawkish Fed (Yellen).

Although, Yellen may sound less hawkish in her testimony yesterday, on closer scrutiny she has said nothing new, which market does not know already except some dovish outlook on the US inflation; i.e. Yellen suddenly appeared as an “inflation dove” contrary to her earlier stance in the last two FOMC meet as an “inflation hawk/owl” terming the subdued US CPI as pure transitory and lower prescription drug & mobile plan charges are primarily responsible for tepid US inflation.

Overnight US market (DJ-30) rallied by almost 0.57% on dovish Fed as it appears a goldilocks situation for equity in the backdrop of a higher growth & lower rates!!

As par Yellen, the above two items may be replaced in calculating US CPI in the next revision and after that there should be a fair assessment of US inflation. Overall, it seems that Fed is going for gradual QE tapering from Sep’17 onwards for its holding of nearly $3.5 tln QE bonds out of total B/S size of $4.5 tln and depending upon the outcome of it in next 6-12 months, it may either increase or decrease of the pace of QT and by 2022, it may complete the overall B/S normalization process.

Regarding further rate hikes in 2017, Fed may closely follow the trajectory of US inflation and if it’s satisfactory, Fed may go for another hike in Dec’17 or otherwise it may defer it to 2018; in that sense, tomorrow’s US CPI may be vital to assess Fed’s QT path going ahead.

Previously, Fed was supposed to hike US rate to around 3% by 2019 assuming US CPI will hit 2% by then leaving the RRI around 1%. Now it seems that Fed is going to change that perception as it may be difficult for US CPI to sustain consistently above 2% in the days ahead. But, QE unwinding itself may pose major threat to the risk-on trade in the days ahead.

Back to home, Indian market may now focus on RBI rate cut after yesterday’s lower CPI; but that may be more of a favourable base effect and sudden fall in food inflation and considering the overall stance of global central Banks looking for QT and domestic factor of limited transmissions & higher small savings interest rates & India’s attraction of higher bond yields, RBI may not oblige or at best it may be an one off cut for 2017 (hawkish cut) unless other parameters are resolved. 

SGX-NF