Vikram Murarka
Kshitij Consultancy Services
GOOD MORNING!
STOCKS
The US NFP report turned out to be a positive surprise, confirming the ongoing recovery in the US labor market. Coupled with the unchanged rates from the ECB, it has brightened the mood of the markets everywhere.
Dow (17068.26, +0.54%) closed at a 5 week high and above 17050 on the back of a good NFP data and may rise to 17250-300 now. The Dax (10029.43, +1.19%) rallied strongly to break above 9935 and reach the life high. 10200-250 can be expected soon and even higher levels can’t be ruled out anymore.
Nikkei (15442.51, +0.61%) opened sharply higher, not far from our target of 15600 and though grudgingly, may try to reach higher levels as long as it stays above 15300. The Shanghai (2058.36, -0.24%) keeps trading in a contracting range for the last few months where the range has come down from 200 to 75 points now with the breakout levels coming at 2000 & 2075.
Nifty (7714.8, -0.13%) may be prepared for some more rally now after it spent a day to consolidate. Any dip would get support from 7680-50. Keep any eye on BankNifty if it manages to break above 15800, bringing more momentum.
COMMODITIES
Gold (1319.343) fell sharply yesterday after the US NFP came out better than estimates. The direction further is unclear unless we see a break on either side of the 1300-1325 range. 1350 on the upside could be targeted if a break above 1325 is seen. Overall the trend remains down.
Silver (21.103) is also stable and may target 21.5-22.5 in the near term. Gold-Silver ratio (62.49) is testing support near current levels which if holds could rise towards 63-63.50.
Copper (3.2735) is rising sharply just as expected and may target resistance near 3.32-3.33 and further 3.75-3.8. The rally would continue in the near term.
Brent (110.95) has tested support near 110.83 and is ranged near those levels. Need to see if it bounces back from here to target 112.6-114 or falls further towards 109.3.
Nymex WTI (103.92) is testing channel support on the daily charts and may bounce back from here towards 105-107 in the near term but before that we may see some sideways consolidation for a few sessions. Note a crucial weekly support is coming up near 102.5-103.6 region which could be tested if it falls below 103.8.
FOREX
The ECB comments and the US NFP data brought a lot of volatility as expected and the Dollar (80.20) got a lot of strength but still needs to break above the resistance of 80.45-50 to negate any immediate weakness.
Euro (1.3609) broke the uptrending channel after the ECB meet and the subsequent steep break in EURGBP (0.7927) suggests more downside, even upto 1.35. Keep an eye on the supports at 1.3580 and 1.3550.
Dollar-Yen (102.13) is close to our target of 102.50 after the US NFP data boosted the Dollar but the range of 101.20-102.75 may continue for some more time. The Euro-Yen (138.99) remained mostly unchanged as both the Euro and Yen weakened simultaneously. The broader range of 138-140 doesn’t show any sign of breaking soon.
Pound (1.7166) is unaffected by all those happenings in ECB or US and keeps trading with a lot of bullish momentum. Now it may reach 1.72 as expected or even higher very soon.
After the false breakout above 0.9460, Aussie (0.9358) has tested the entire support band of 0.9350-20 and now it must bounce higher without making any new low to keep the already threatened uptrend alive.
Dollar-Rupee (59.73) may retest the lower area of 59.60-45 as the strong Dollar effect is not getting visible in the EM currencies world. In the range of 59.45-60.00, multiple possibilities exist. Stay cautious.
INTEREST RATES
The US %Yr (1.74%) has increased 3bp to 1.74% while the 10Yr and 30Yr have moved up 1bp each to 2.64% and 3.47%. Important thing is, the bounce is continuing. Keep an eye on 3.5% on the 30Yr. A rise past that could lead to accelaration on the upside. The US NFP has been strong (+288K) against an expectation of +211K. Should hiring increase past 300K in July, it will be a big victory for US growth. Take a look at
http://www.kshitij.com/fundamentals/funcharts/usnfp.shtml
The 2Yr Swap Cost (0.13705) has moved up from 0.1238% and is likely to climb higher in coming weeks.
Draghi promised rates will remain at current levels (ECB lending rate 0.15%, bank funds deposited to ECB to fetch -0.10%) for an extended period. Market expects this to mean till end 2016. Contrast this with market expectations that US rates will rise by H-2 2015. The Euro (1.3605) has come off heavily and has fallen particularly sharply against the Pound. The German-US 2Yr Spread (-0.48%) and 10Yr Spread (-1.34%) are trading well below earlier trendline supports and could decline further.
The 10Yr GOI was steady at 8.66%, but the 10-Yr Indo-US Spread has fallen further to 6.03% from 6.11% earlier. This may be good for Rupee.
DATA TODAY
No major data release today.
DATA YESTERDAY
EU Retail Sales
...Expected 0.3 % ...Previous 0.4 % ...Actual 0.10 %
ECB Meeting
...Expected 0.15 % ...Previous 0.15 % ...Actual 0.15 %
US Trade Balance
...Expected -45.10 $ Bln ...Previous -47.24 $ Bln ...Actual -44.40 $ Bln
US NFP
...Expected 211 K ...Previous 217 K ...Actual 288 K
US Unemployment Rate
...Expected 6.3 % ...Previous 6.3 % ...Actual 6.10 %
The above views are based on the latest available information. Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. While the views are proffered with the best of intentions, neither the author, nor the firm are liable for any losses that may occur as a result of any action based on the above. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.
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