Wednesday 12 July 2017

Nifty Surged Almost 42 Points Higher Well Above 9800 In A Closing Session Brisk Buying/Forced Short Covering Amid Some Surge In Global/EU Markets Boosted By Recovery In Oil & Fed Optimism



Market Wrap: 12/07/2017 (17:00)

NSE-NF (July): 9829 (+41; +0.42%) (TTM PE: 24.85; Near 2 SD of 25; Avg PE: 18; TTM EPS: 395; NS: 9816)

NSE-BNF (July): 23747 (+130; +0.55%) (TTM PE: 29.80; Near 3 SD of 30; Avg PE: 20 TTM EPS: 795; BNS: 23695)

For 13/07/2017:

Key support for NF: 9775-9715

Key resistance for NF: 9835-9875

Key support for BNF: 23600-23500

Key resistance for BNF: 23800-23900


Time & Price action suggests that, NF has to sustain over 9835 area for further rally towards 9875-9915 & 9975-10050 in the short term (under bullish case scenario).

On the flip side, sustaining below 9815 area, NF may fall towards 9775/9715-9665 & 9600-9560 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).

Nifty Fut (July) today closed around 9829, almost 0.42% higher after making a session low of 9786 and late day high of 9830 amid closing session brisk buying or rather forced short covering (P-Notes FNO) after sudden surge in EU/global markets boosted by OPEC optimism about Oil.

Indian market today opened around around 9802, almost flat tracking subdued/mixed global/Asian cues after Trump Jr released a trail of mails revealing contacts with Russia in the US election affair. As a result, Trump Jr may have to now testify before US senate and also will be investigated by US special attorney Muller’s team.

Thus, US political drama is getting serious day-by-day and eventually “Don Trump” may also be accused as an US Prez backed by Russia or under Putin’s control and may also be impeached & removed in the worst case scenario as US citizens/lawmakers may not tolerate such situations. This may be a onetime black swan event, but may be also positive for the risk assets as an element of uncertainty & daily caricature (circus) will be removed from US politics & administration (WH).

As a result, despite USDJPY has plunged, US stock market (DJ-30) yesterday recovered from the low as investors may be scrambling to buy the Trump dips and DJ-30 closed almost flat supported by Techs, Oils and Q2 earning optimism. Also, buzz of passage of Trumpcare bill in the current session of US House and some progress in the tax reform bill may have supported the US market yesterday.

Apart from that, market may be also cool to the ongoing Trump-Russia controversy as none of the materials including yesterday’s e-mail chains from Trump Jr is sufficient for an impeachment for Trump Sr. As par reports, NYT was supposed to break the news of this e-mail saga first, but realizing that it may harm more, Trump Jr suddenly posted the e-mail chains in his twitter handle before NYT breaking news.; so it may be a forced revelation and market plunged.

Globally, all eyes will be on Yellen’s testimony today for a definitive plan for Fed’s QT path, but considering the ongoing US political controversy, Yellen may not reveal anything new which market does not aware of and she may choose to keep the ongoing Fed suspense about QE unwinding & further rate hikes; thus it may be a neutral event for today and may also disappoint the USD bulls.

As of now, from various US policymakers & Fed speakers, it seems that Fed is going to start its B/S tapering from Sep’17 and depending upon the effects of it on market & economy and incoming US economic data Fed will decide for the Dec’17 hike or not.

Apart from Yellen’s testimony, market may also focus on BOC, which is slated to hike today (above 90% probability) as a major G-10 central Bank after 2015 apart from Fed and this may be a signal for major policy restructuring amid chorus of coordinated QT by the global central Banks in the coming days including Fed, ECB & BOE. Only a Trump impeachment may now force the Fed to be in the sideline. A QT may be bad for risk & EM assets (EQ market).

Tracking subdued global cues, Indian market was also almost flat most of the days supported by ongoing forced P-Note FNO short covering and oil & gas and some FMCG counters.

Although, Indian market is breaking record after record, it’s coming on the back of forced P-Notes FNO short covering and not on the back of fundamental buying or reasons and is also not being supported by earnings; TTM PE may be now around 25, which is quite stretched and in the bubble zone also as par previous trends; yesterday’s Indusind Bank report card may be termed as mixed as despite decent top & bottom line figure, Bank’s asset quality may be losing shine. All eyes may be now on the CPI & IIP data later in the day today amid hopes of a RBI rate cuts in Aug’17.

As of now Indian market is being supported by huge liquidity, forced FNO short covering, Q1 earning optimism, good monsoon and smooth roll out of GST (so far).

Looking at the chart, Nifty Fut (July) now need to sustain above 9835 area for further rally towards 9875-9915 & 9975-10050 zone; otherwise it may correct and sustaining below 9815 area, may further fall towards 9775-9715 & 9665-9600 in the short term.

Today Nifty was supported by RIL (R-Jio optimism) & other Oil and Gas counters (favourable Crude Oil price) Cement counters (ACC/Ambuja), Infratel (tower assets deleveraging & better prospects of telecom), HUL & SBI.

Nifty was dragged by TCS/INFY (concerns of poor report card), M&M, Auro/Sun Pharma & Hero Motors. On the broader market MFI(s) were in demand on hopes for further M&A/Consolidation, RBI rate cuts ahead of CPI data today and reported improvements in loan EMI collections on the back of good monsoon despite concerns for credit discipline amid farm loan waivers in various states.

Meanwhile, Indian CPI came as 1.54% for June against estimate of 1.70% (prior: 2.18%) helped by fall in food inflation; IIP for April came as 1.7% (YOY) against estimate of 1.9% (prior: 2.7%). Core CPI may be now hovering around 3.5-4%; but still sticky.

Overall, RBI may cut 0.25% in Aug, but it may be one off in CY-2017 (hawkish cut) and going forward RBI/MPC may closely watch effect of GST, HRA(7-CPC arrears) on core inflation & seasonal factors on food inflation and may be in a “wait & watch” mode. Apart from these, transmission factors & high small savings rates and attractive Indian bond yields may be some of the other reasons for which RBI may also stay “neutral” in the coming months.

Another point may be also that sudden plunge in inflation may be also an indication of economic activity contraction and lack of demand after demonetization.

Anyway, the dual combination of lower headline CPI (at five years low) along with tepid IIP may put more pressure on RBI to act (cut) in Aug; but the big question is will RBI oblige, when all the major global central banks are perusing for a QT path ?

Asia-Pacific market update:

Elsewhere, Australia (ASX-200) was closed around 5676, almost down by 0.90% on strength of AUDUSD and dragged by Banks. Japan (Nikkei-225) is trading around 20097, down by almost 0.50% as Yen got strength after epic fall of USDJPY yesterday amid US/Trump political turmoil.

China (SSE) was closed in negative around 3190 (-0.38%) amid clampdown on insider trading despite PBOC infused 20 bln Yuan today in the money market after nearly two weeks as corporate China may face some liquidity crunch for the forthcoming tax payments.
Hong Kong (KKG-33/HSI) was trading in green around 26030 (+0.50%) supported by earnings optimism of China based banks and is basically driving the Asia market sentiment including India.

Oil is now trading around 45.90, almost up by 1.78% after a roller coaster drive yesterday amid OPEC squabbling. After initial plunge to below $44 handle following reports of Saudi breach of OPEC agreement, Oil got support from the 43.70 level as OPEC confirmed 97% overall production cut compliance in June. 

Also EIA trims down both US crude production estimate along with slight downward revision for 2017-18 global oil demand which may be positive for Oil as it is indicating rebalancing of oil supply & demand by 2018 (faster than market is expecting).

Oil got further boost today after US API report (Private) shows surprised drawdown in Crude Oil; official (Govt) EIA report may now be closely watched as there are huge variations from time to time between these two reports.

Technically, Oil now need to break above 45.95 area for further rally towards 46.20-46.90 & 47.60-48.35 zone in the short term; immediate support may be now placed at 45.50 and sustain below that, oil may further fall towards 45.15-44.70 & 43.70-42.00 area in the coming days.

European market update:

Apart from recovery in Oil, upbeat EZ IIP and UK labour may have also boosted the overall EU market sentiment, which in turn also helped the Indian market today in the closing session.

Meanwhile, global markets including EU markets are now trading in deep green after release of Yellen’s testimonial, which sounds dovish; but overall, the statement is nothing new. Fed may be committed to taper its B/S from Sep’17 and depending upon its effect on the market, it will decide its future course of action for further rate hikes either in Dec’17 or more gradual rate hikes in 2018.

Thus, probability of a Sep’17 rate hike is now almost nil, but Dec’17 meeting may be still alive as FFR is now indicating almost 53% probability of the same, down from 60% prior to the Yellen’s statement. As a result, USD/US bond yields slumped and Gold & stocks surged. But, we may get more information from Yellen about Fed’s plan at the time of Q&A with the US Senate. 

FTSE is now trading around 7415, almost up by 1.17% supported by some fall in GBP and upbeat job data today apart from Yellen’s sudden dovish turn. Similarly, DAX is also trading upbeat at around 12621 (+1.50%) supported by some fall in EUR/EU bund yields. CAC-40 & MIB-40 are also trading in deep green around 1.75% & 1.50% higher. 

EU market today also got some support from upbeat retail sales data from Burberry, a retail/consumption stock.

US market update:

SPX-500 Soared To Almost Life Time High After Yellen Sounds Less Hawkish Than Market Expected:

SPX-500 today surged to around 2443, almost to the life time high of 2451 after Yellen’s testimonial statement shows that Fed is highly concerned about subdued US inflation and thus will like to hike gradually; although it will begun to taper its B/S shortly.

Thus, in brief, Fed has almost decided about QE tapering from Sep’17, but Dec’17 rate hike may not be certain as of now; it will depend on various factors after start of tapering and other incoming US economic data. Today’s statement about inflation by Yellen may be in contrast to her earlier rhetoric, when she termed it as purely transitory and should not pose any problem in future rate hikes.

So, even if Yellen sounds little dovish or rather than less hawkish, the statement has nothing new, which market does not know; after the testimonial statement, FFR is still showing 53% probability of a Dec’17 rate hike, down from 60% prior to the release of the statement.

But, Sep’17 rate hike probability may be now almost nil and all these factors are causing USD down followed by EUR as a dovish Fed with no further hikes in 2017 may also help ECB to maintain similar accommodative policy. As a result, USD, EUR and also JGB bond yields are plunging and stocks & Gold are surging.

Some of the highlights from Yellen’s prepared statement today:

·         Additional gradual hikes needed in next few years
·         Current path of economy expected to warrant further gradual increase in the Fed funds rate
·         Fed likely to implement balance sheet reduction plan 'this year'
·         Fed doesn't need to hike all that much further to hit neutral
·         Economy picked up in Q2, aided by household spending, business investment and stronger global economy
·         Carefully monitoring inflation but believes recent dip is due to a few unusual price declines in certain items
·         Sees roughly equal odds of faster or slower growth than current forecasts
·          Inflation response to economy is key uncertainty
·          Job gains, growth should foster wage and price gains
·          Inflation running below goal, has declined recently
·           US fiscal policy another source of uncertainty
·           Investment has turned up, growth abroad strengthening
·           Sees moderate growth pace continuing next few years
·           Long-run normal size of B/S still to be determined
·           Fed doesn't expect to use B/S as active policy tool


In brief, Fed may not want dual QT (both QE tapering & rate hikes) at the same time and thus now taking the excuse of tepid US inflation for hold till Dec’17; but even then a QE tapering may not be good for risk assets (EQ), it may be more worst than few Fed rate hikes.

Technically, SPX-500 now need to sustain over 2555 area for more rally towards 2495-2505 zone; otherwise it will again fall to 2400 zone in the coming days.



SGX-NF


BNF


 
 SPX-500

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