Market Wrap: 13/10/2017 (17:00)

NSE-NF (Oct):10194 (+83; +0.82%)

(TTM PE: 26.41; Abv 2-SD of 25; TTM Q1FY18 EPS: 385; NS: 10167; Avg PE: 20; Proj FY-18 EPS: 418; Proj Fair Value: 8360)

NSE-BNF (Sep):24738 (-289; -1.19%)

(TTM PE: 28.11; Abv 2-SD of 25; TTM Q1FY18 EPS: 878; BNS: 24689; Avg PE: 20; Proj FY-18 EPS: 961; Proj Fair Value: 19220)

For 16/10/2017:

Key support for NF: 10150-10075

Key resistance for NF: 10225-10275

Key support for BNF: 24625-24300/24000

Key resistance for BNF: 24875-25050

Hints for positional trading:

Technicals indicate that, NF has to sustain over 10275 area for further rally towards 10325-10380 & 10455-10495 area in the short term (under bullish case scenario).

On the flip side, sustaining below 10255 area, NF may fall towards 10150-10075 & 10020-9975 area in the short term (under bear case scenario).

Similarly, BNF has to sustain over 24875 area for further rally towards 25050-25250 & 25585-25795 area in the near term (under bullish case scenario).

On the flip side, sustaining below 24825 area, BNF may fall towards 24625-24400 & 24300- 24200/24000 area in the near term (under bear case scenario).

Indian market (Nifty Fut/India-50) today closed around 10194, soared by almost 83 points (+0.83%) and made an opening session low of 10117 and late day high of 10219.

Indian market today opened edged up around 10130 amid mixed global cues, upbeat macro data (CPI/IIP), telecom consolidation & hopes for an earnings recovery in Q2 and subsequently raced to the new milestone high of 10180 in Nifty Spot in a catch up trade tracking global market, also hovering around new milestone highs on growth & earnings optimism.

Some market participants may be also assuming that as yesterday, CPI for Sep came as 3.28% vs prior 3.28%-R, it may give some rooms RBI to consider a rate cut in Dec’17 (?) and thus some rate cut hopes may be also responsible for today’s sharp rally in the market.

But, considering the sticky nature of core inflation at 4.6% vs 4.5%, RBI may not oblige, if we consider only growth vs inflation; also yesterday’s upbeat IIP for Aug at 4.3% vs prior 1.2% may also calm the nerves of the central bank policy makers after DeMo & GST distorted GDP for Q1FY18 at 5.7%.

Thus RBI may wait for more evidences about structural slow down in the Indian economy and thus may not change their neutral stance abruptly, depending upon only one quarter’s data, which may raise question about RBI credibility.

Today Nifty was supported by Bharti Airtel (favourable M&A with Tata Tele), Infratel (buzz of tower deal), RIL (earnings optimism), Tata Steel, Kotak Bank, Ultratech Cement, Bosch, HDFC Bank & ICICI Bank, while it was dragged by Gail, ZEEL, DRL, M&M, Sun Pharma, BPCL, L&T, ITC, Maruti & Auro Pharma.

Overall, Indian market was today helped by banks (hopes for NPA resolution & rate cuts), telecom (ongoing consolidation & Bharti Airtel-Tata Tele merger deal) & metals while dragged by energies, health care & FMCG.

Globally, almost all the major Asia-Pacific stock markets spikes today and trading around multiyear milestone highs amid growth & earnings optimism.

Overnight US market edged down on muted guidance from some big banks like JPM & City, despite upbeat results coupled with AT&T for terrible subscriber addition figures in Q3. Overall market was cautious ahead of Q3 earning season coupled with ongoing NK “nuke earthquake” tensions. USD dropped further yesterday late NY session on some USGS report about a mild NK earthquake in the vicinity of earlier Nuke test area, although it may be natural and not manmade (nuke)!!

DJ-30 fell around 0.14%, S&P-500 closed around 2551, down by almost 0.14%, while NQ-100 dropped by around 0.18% after hitting another trifecta of record highs intraday as usual. Media stocks were also under pressure whereas E-Automakers (Tesla) helped the market to some extent.

Healthcare stocks were mixed after Trump signed another executive order for some modifications of health insurance coverage in the Obamacare, which may not be good for the average Americans because it could cost them higher for insurance premium.

Also, the original tax reform plan of Trump may not be good for ordinary (lower/middle) income American people and also for the US/state treasuries; this tax plan may not help the US consumer spending and growth. Thus, market response so far is quite muted after initial euphoria. Market will focus on fresh “adjustments” by Trump in his tax reform plan by next few weeks.

Overall, US market may be expecting around 4.5% EPS growth in Q3 against double digit growths for the previous two quarters to justify the premium valuations of S&P-500, now trading around almost 25 TTM PE. So far, on YTD basis, DJ-30 has gained around 16%, S&P-500 is up by almost 14%, while NQ-100 rallied by around 23%. Trump is also very proud and has given all the credit to himself for the “phenomenal” 25% rise in DJ-30 since 6^th Nov’16, his Election Day win.

Apart from hopes of Trumponomics, overall upbeat PMI data from China, Japan, EZ to US and solid earnings has boosted the overall global market sentiment, which is at now record high. Also upbeat PPI data from China has boosted the global reflation narrative because ultimately, China is the global growth engine and manufacturing power house of the world.

Today China’s trade data for Sep flashed as mixed; although export came little below expectation at 8.1% vs 8.8% eyed (prior: 5.5%), there is visible improvement from Aug after PBOC refrained from further Yuan strengthening. China import for Sep surged by 18.7% vs estimate of 13.5% (prior: 13.3%); today’s trade figures may be also distorted by the golden week holiday, but overall it removes the concern of China slow-down.

US stock future (SPX-500) is now trading around 2548, almost unchanged ahead of EU market opening and earnings dump later today.

USDJPY is now trading around 112.15, down by almost 0.15% and so far made a low of 112.09 from yesterday’s NY session high of 112.50 mapped after an upbeat US PPI data, distorted by the dual hurricanes. Overall, Fed’s inflation dilemma, leadership (policy continuity) uncertainty and NK rhetoric is affecting the USD sentiment despite mixed economic data and an assured Dec’17 rate hike.

All eyes will be now on the US CPI, retail sales today as inflation & consumer spending/wage growth is now Fed’s prime concern for further policy tightening (normalization). But today’s data may be also affected by Harvey & Irma hurricanes. Thus, market may keep finger crossed for the overall Nov-Dec (1^ST WK NFP) US economic data before Fed at Dec 2^ND WK.

EURUSD is now trading around 1.1845, up by almost 0.12% on a trail balloon by ECB that they may go for gradual QE tapering from Jan’18 with bond purchase of EUR 30 bln/pm till Sep’18 in lieu of present EUR 60 bln/pm. Although the figure may be little disappointing for the hardcore EUR bull, still it’s a decent start.

Overall, it now seems that Draghi & Co is gathering enough courage to announce a formal QE tapering on 26^th Oct, considering the ongoing Catalonian political crisis, sufficient to keep EUR under some stress. Thus, ECB may go on for their gradual QE tapering without worrying too much for the EUR strength!!

GBPUSD is now trading around 1.3276, up by almost 0.11% on prospect of a “soft Brexit” after reports that EU may offer 2 yrs transitional period to UK as par Theresa’s desire; but all these proposals may be also subjected to payment of the divorce bill, although the whole story is still not confirmed by the EU authorities officially.

Earlier, there was news that UK may go for the “hard Brexit” without any deal at all as the whole negotiation process is practically stalled for the last few months on certain core issues. Also, UK may go for another 2^nd (confirmatory) Brexit referendum, considering the overall exit mess.

If such Brexit squabbling will continue and EU does not confirm the “Soft Brexit” narrative, then it may be very tough for Carney to go for the Nov’17 rate hike also, despite it can erode the BOE credibility completely. Even if BOE goes for the Nov rate hike with demonstrable courage amid such Brexit & UK political uncertainty, it may be “one & off” until March’19 (dovish hike).

Elsewhere, Australian market (ASX-200) closed around 5814, up by almost 0.30% despite AUDUSD is edged up today; AU market was today helped by telecoms, utilities, consumer staples, banks & financials, mining stocks (on upbeat China trade data despite overnight fall of iron ore) while dragged by energies & gold miners to some extent. CBA edged down for change its employee’s incentive policy from financial product selling targets to customer service quality.

AUDUSD is now trading around 0.78343, up by almost 0.10% on fall in US bond yields coupled with upbeat China economic data, its biggest trading partner.

Japan (Nikkei-225) closed around 21155, at another 21 yrs milestone high, rallied by almost 0.96% today despite higher Yen. JP market was today helped by retailers, while dragged by auto makers, exporters, energies, metals and selected financials, Overall, JP market sentiment is being supported by Abe election prospect optimism and recent spate of upbeat economic data and growth & earnings hope.

China (SSE) closed around 3393, edged up by almost 0.13% as market may be cautious ahead of earnings deluge and party congress amid an upbeat China trade data today; it was dragged by commodities/energies on winter pollution concern while helped by healthcare stocks on medical reforms.

Today PBOC fixed the mid-point of USDCNY at 6.5866 vs 6.5808, little higher with rollover of 498 bln Yuan via MLF 1 YR loans at 3.2%.

Hong-Kong stock future (HKG-33) is now trading around 28475, up by almost 0.20%. HK market was today helped by banks & financials, while dragged by energies tracking mainland peers. Overall market may be also cautious for stretched valuation, new land policy and may focus on earnings & China party congress, which is set to guide the regional as well global market direction to some extent.

Meanwhile, Crude Oil (WTI) is now trading around 51.25, up by almost 1.50% on better than expected drawdown (inventory) report from EIA last night; yesterday it slipped by more than 1% on EIA forecast of less oil demand in 2018, coupled with prospect of higher US production. Also, ongoing OPEC jawboning and Kurdish conflicts may be helping oil at this moment, but end of summer driving session is also a headwind.

European Stocks Edged Up On Bayer Deleveraging Move, But Under Pressure On Higher EUR After Subdued US Inflation

EU stocks today edged up on support of Bayer’s deleveraging news coupled with miners/basic materials, telecom & energies tracking upbeat import data from China for iron ore & crude oil, while dragged by banks & financials (lower bond yields) and health care.

Stoxx-600 is now up by almost 0.33%, while DAX-30 gained by around 0.20%, CAC-40 is almost unchanged (+0.01%), IBEX-35 is also almost flat (-0.03%), while FTSE-100 edged down by around 0.15%.

Overall EU market rally capped today as EUR goes higher after subdued US inflation & retail sales coupled with an imminent ECB QE tapering buzz from Jan’18. Market is also cautious ahead of earnings deluge.

FTSE-100 is also under pressure on higher GBP amid talks of a transition period offer by EU (soft Brexit); it was further dragged by an engineering share GKN for guidance warning, while supported by Provident Financial on upbeat prospect after falling almost 70% this year (subprime home credit business).

Overall, an environment of low interest, low inflation & decent wage growth may be supporting the overall EU market sentiment despite s relatively strong EUR. As par IMF’s Lagarde, she is reasonably optimistic about global economic growth, noting that it’s broad based, more solid and should get better, but needs to be sustainable and get benefit for all.