Friday 1 December 2017

Nifty May Struggle On Concern For Fiscal Slippages & “Hawkish Hold” By RBI After An Upbeat GDP & Mfg PMI; Global Cues Are Mixed Amid Ongoing US Tax Reform & Political Squabbling



Market Mantra: 01/12/2017 (09:00)

SGX-NF: 10278 (-0)

For the Day: updated: 01:15

For 01/12/2017: Dec-Fut

Key support for NF: 10240/10220-10190/10150

Key resistance for NF: 10290/10310-10365/10425

Key support for BNF: 25400-25200

Key resistance for BNF: 25750-25875

Trading Idea (Positional):

Technically, Nifty Fut-Dec (NF) has to sustain over 10310 area for further rally towards 10365-10425 & 10485-10540 zone in the short term (under bullish case scenario). 

On the flip side, sustaining below 10290 area, NF may fall towards 10240-10190 & 10150-10080 zone in the short term (under bear case scenario).

Technically, Bank Nifty-Fut (BNF) has to sustain over 25750 area for further rally towards 25875-26000 & 26100-26325 zone in the near term (under bullish case scenario).

On the flip side, sustaining below 25700 area, BNF may fall towards 25400-25200 & 25050-24700 area in the near term (under bear case scenario).

As par early SGX indication, Nifty Fut (Dec) may open around 10278, almost unchanged on mixed global/Asian cues amid ongoing US Tax Reform squabbling and an upbeat Indian GDP released yesterday. 

Although US market yesterday rallied quite smartly on hopes of an imminent passage of tax reform bill in the Senate after McCain, a well known influential RNC rebellion Senator, has given his nod to support the tax bill in the interest of the nation (middle class voters).

But last hour debate about huge tax deficit financing mode has forced the US Senate to defer the voting later today in order to address the concern of the fiscal hawks. Thus US index future slipped a bit in the early Asian session, dragging the overall Asian market to some extent & also risk-on sentiment.

Asia-Pacific markets are trading mixed on higher USD (helpful for export savvy market), US tax reform & financial deregulation optimism; Japan & AU market are in green; but China & HK markets are still in red on techs sell off, deleveraging, regulatory tightening & China slowdown concern. Today China Caixin Mfg PMI for Nov came muted at 53.6 vs est 53.8; prior: 53.8; this covers mainly Chinese MSMES, unlike Govt PMI

Today’s overall JP economic data was also mixed; core national CPI for Oct came as 0.8% vs est 0.8%; prior: 0.7%; this is far away from BOJ’s elusive target of 2%. Also Mfg PMI for Nov came as muted at 53.6 vs est of 53.8; prior: 53.8.

Thus muted JP economic data along with US tax reform optimism is now supporting USDJPY to some extent despite another round of US political entertainment in the form of exit buzz of Tillerson and it’s now trading almost flat around 112.50; looking ahead, for any breakup from here, it needs to sustain above 112.80 zone; otherwise it will come down. On the political drama front, all eyes may be now on Tillerson’s “Farewell WH Lunch” thrown by Trump today.

Overnight US market soared over tax reform optimism; although passage of the bill looks almost certain after McCain nod, still there are some suspense considering the stance of fiscal hawks. Market was also supported by bargain hunting in tech stocks after yesterday’s sell-off. Also Yesterday’s mixed US economic data was helpful for the stock market (a lower USD is good for US stocks).

DJ-30 soared by almost 1.39% and climbed almost 24328, another milestone level of 24k, prompting some chest thumping tweets from Trump again; S&P-500 gained by 0.82% & closed around 2648, while NQ-100 recovered by 0.73% on renewed optimism about techs as their days are not numbered yet; there are still various growth avenues for them.

Overall, market may be expecting a corp tax cut of 15% (with limited tax deductions) from 2018 itself at one go in lieu of 2019 or gradually over next 5 years. Any disappointment from that angle may also cause huge selling (risk-off mode) as US stock markets valuations are now also stretched after the stellar rally. As par some estimates, a reduction of corp tax to 25-20% (net of various tax deductions) could boost S&P -500 EPS by around 6.5%-$10 and market may have already discounted for that to a large extent.

US market was also helped by energies (OPEC agreed to extend oil production cut agreement for another 9 months as highly expected), industrials/transportation (prime beneficiary of corp tax cut), banks & financials (hopes for more deregulation & ease of Volker Rule; also tax cuts benefits may be passed on to the investors in the form of share buybacks); all the 11 sectors were in green yesterday.

US index future (SPX-500) is now trading around 2644, edged down by almost 0.15% on mixed Asian cues & US Tax reform suspense.

EU market is also poised to open edged down on US Tax reform & political squabbling and higher EUR.

Back to home, Indian market (Nifty-Fut/India-50) is now trading around 10255, edged down by almost 0.25% despite an upbeat GDP & Mfg PMI today (52.6 vs est 51; prior: 50.3). Market may be worried about fiscal slippages and any adverse (below expected) election outcome from GJ this time. 

Also, fine print of the GDP looks not so much convincing amid slowing private consumption & surging imports; surge in hotels/travels & tourism may be a function of festival holiday season and boost of financial services may be reflection of present boom in the stock market.

Also, market may be disappointed over the likely stance of “hawkish hold” by RBI not only on 6th Dec, but also for the entire 2018 as “growth is limping back” and you can’t ask a central bank to cut again when an economy is expected to grow by 7-8%.

All being equal, in 2018-19, we may see start of global interest rate hikes cycle and RBI can’t diverge from the global trend simply to keep the Indian bond yield differential attractive enough for the FPIS to invest in India; otherwise, who will fund the stories of Modinomics?



SGX-NF


SPX-500

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