Market Morning Briefing

GOOD MORNING!

STOCKS
Good set of economic numbers in US, milder numbers from Europe & China and bad numbers in Japan seem to be setting the tone for the week ahead. With so much news-driven flows, we expect market to be cautious and unwilling to take major positions ahead of these uncertainties.

Interestingly, Dow (17,719.00, +0.19%) could not capitalize on good CPI (1.7%), and a spectacular Philly FED data (Actual: 40.8, Expected: 18.5), and equities and dollars pretty much ended where they were. This behavior of not responding to 'good news' at new highs is a sign of concern. Only explanation could be that there are slew of data releases pending next week, and market might want to factor that as well. 

The depreciation in Yen is not having any impact on Nikkei (17,162.93, -0.80%) for past few days. Its little early to judge if Nikkei will catch up with Yen or Yen will depreciate to match Nikkei's mild tone. For today, we expect the 17,400-17,000 supports to hold and potential produce a bounce. Short term trend remains slightly bearish and in profit taking mode.

Shanghai (2,447.36, -0.22%) is stuck in a range of 2,450 and we expect a dip to 2,420 to materialize today. We must reiterate, the long term trend in Shanghai is bullish, and these corrections must be seen as buying opportunities.

Dax (9,483.97, +0.12%) dipped to near 9350 and bounced from there. In short term, Dax is stuck in a range and there are no short term trends but the chart structures indicate weakness giving us more better odds at Sell than buy at current levels. 

Nifty (8,401.90, +0.23%) bounced from its supports of 8,350 and retraced to its fib-resistances. We expect it to retest 8,450 today; the resistances on the way are 8,415 and 8,435-40.

COMMODITIES

Previous session Brent (79.59) prices ended in green below 80-81 levels. Recovery from day’s low of 77 (mentioned in previous post) led to a bullish candle on daily charts. Seems, investors are eyeing at the OPEC meeting and Iran Nuclear talks in Vienna scheduled next week. Nymex WTI (76.20) is trading below 76.50. Rising Crude inventories is a concern for the Investors while it has been in a primary down trend. Keep an eye on the resistance levels of 76.40-76.50.

Gold (1192.10) tested its resistance levels of 1200-1205, and finding difficult to move through. Some consolidation likely in between 1170-1200 amid range bound choppy movements in Dollar Index.Silver (16.23) prices are not able to define a clear trend while it is trading below 16.80. Expect a narrow range of 15.80-16.80 for today’s session.

Copper (3.0205) swung between gains and losses between more compressed ranges of 3-3.05 while maintaining the primary bear trend intact. This kind of price contraction (Price-Time retracement) could be an early indication of a big move. We have to wait to predict the break out direction.

FOREX
The profit booking in dollar seems to be the themes after massive gains in past three months.

Euro (1.2551) remains in its channeled range. For Euro bulls, it is encouraging that Euro did not dip on good US economic numbers. For today we expect it to trade with the range of 1.26 and 1.25. Break of either of these two levels will add to further moves.

Pound (1.5693), like Euro, held well against the Dollar data. It is stuck its small ranges of 1.5600-1.5750. 1.5800 is the immediate and much stronger resistance. 

As expected the 118-handle on Yen (117.81) has stopped the Dollar-Yen rally for now. We expect this area to be much difficult to cross, and Yen is more likely to consolidate in a broad range for medium term. Unless something radical on fundamentals front like Japanese election results, we are likely to have seen the bulk of the Yen-depreciation for now. 

Dollar-Rupee (61.94) resistance at 62.20 held up well yesterday, with USDINR dropping back sharply to 61.94. We expect Dollar-Rupee to fall back and test the 61.70 supports. For the day, we expect it to trade within a range of 61.90-62.10.

There are no clear trends in Aussie-Dollar (0.8635). For the day, we expect it to trade within the range between crucial 0.8560 supports and 0.8680 range-resistances.

INTEREST RATES

A bit of focus on our understanding of the US interest rate scenario today, not touching upon Germany and Japan.

The US 2Yr (0.507%) has come off a bit from the earlier 0.52% as the Resistance at 0.54-0.55% is holding, as per expectation. 

Yields are a little lower than the day before as the US Core CPI (+0.20% M/m and 1.8% Y/y) came in more or less in line with expectations. The current trajectory suggests that CPI may remain ranged within 1.50-2.0% for the coming months, below the Fed's inflation target of 2%. But, the Fed's favored inflation indicator, the PCE (Personal Consumption Expenditure) last came in at 3.38%, above yesterday's Core CPI of 1.8%. This is more likely to be ranged between 2.5-4.5% for the foreseeable future.

Please see http://www.kshitij.com/fundamentals/funcharts/uscpi.shtml andhttp://www.kshitij.com/fundamentals/funcharts/uspce.shtml

This implies that US interest rates too might also just start ranging sideways in the coming months, within the overall trend of Curve-flattening, converging to somewhere between 2.00-2.75% for the 5-30 year segment, as compared to the current range of 1.62% (5Yr) to 3.05% (30Yr). That ongoing Curve-flattening may not reflect very strong growth is the bigger thing to look at.

The Indo-US CPI Spread has come down to around 3.72% for October, primarily because of the decline in the Indian CPI, but also because of the slight uptick in the US CPI. While this is good news, this may not sustain and the Spread could start moving back up again in the coming months, especially as we see danger of Indian inflation starting to creep back up. We have to see if the 10Yr GOI (8.1579%) continues to hold above 8.15% or not today.

DATA TODAY

13:30 GMT or 19:00 IST CA Inflation Y/Y 
...Expected 2.0 % ...Previous 2.0 %


DATA YESTERDAY:-
US Core CPI (MoM) 
...Expected -0.10 % ...Previous 0.23 % ...Actual 0.2 %

US Philifed Index 
...Expected 18.90 ...Previous 20.70 ...Actual 40.8

US Existing Home Sales 
...Expected 5160 K ...Previous 5180 K ...Actual 5260 K