Market Morning Briefing

GOOD MORNING!

STOCKS
Dow (16808) is consolidating for now and may be ranged for sometime with near term bearishness unless we see a break above 16900-17000. The Dax (9920) has found support from the trendline and has bounced back but we need to see if this rise sustains. An eventual rise to 10300-400 may be expected while 9800-700.

Nikkei (15039.05) has been rising but would face the upcoming resistance near 15200 from where it may again fall towards support near 14700-14650. However, a break above 15250 may take it higher.

Nifty (7631) saw a rise yesterday from 7470 levels. Is this a fresh rise after the recent correction? We need to wait and see for a few more sessions.

COMMODITIES

Gold (1269.55) and Silver (19.706) are stable and ranged for now. A break above 19.80 in Silver (if seen) would take it higher to 20-20.5 while Gold came off from crucial resistance near 1288 and may resume the longer term downtrend. Gold-Silver ratio (64.38) has been moving downwards extending the fall below 65 and may target levels of 64-63.80.

Copper (3.0665) is rising and may eventually target 3.10-3.15 in the coming weeks while above 3.07 within an overall long term down trend.

Nymex WTI (106.70) is stable but may head towards 107-108 in the near term while Brent (113.30) has moved up above 112 levels and may move higher towards 115 with some corrections towards 112-111. Long term remains bullish.

FOREX
The Euro (1.3547) remains in an overall downtrend as it is at a severe yield-disadvantage to the Dollar but also has long-term Support coming up at 1.3480 on the Weekly.

The Pound (1.6963) saw a high of 1.7010 today, meeting our long-held bullish target. Good Support is seen at 1.68 and there could be further room on the upside.

Dollar-Yen (102.21) is rebounding from a dip to 101.60 last week. We see it ranging between 101.50-102.75 for the next several days.

Dollar-Rupee has opened at 60.28 today. We are unsure whether we will see a good final rise towards 60.80 in the coming days or not.

INTEREST RATES
FOMC meeting today. Yesterday's increase in CPI (core 0.22% was well in line with our expectation of 0.2%) has led to increase in Bond yields across the Curve, with the market pricing in a rate hike by mid-2015 or sooner. The US 5Yr (1.75%) is looking particularly bullish now with increased chances of seeing 2.25% in the coming months.

The 2Yr Swap Rate (0.634%) has formed a credible bottom and could be headed up towards 0.75% in the coming months. We expect increased demand for Floating-to-Fixed IRS going forward. The US 2Yr yield is 0.48%, implying a Swap Cost of 0.14825%, up from 0.04% in Dec-13.

How the Fed itself views prospects for the US economy (especially after the IMF's downward revision of forecast) will be interesting to see.

In India, the 10Yr (8.60%) is in a downtrend since 9.10% (08-Apr) with decent Resistance at 8.70%. We do not see last week's May WPI (6.01%) as particularly alarming. We see WPI ranging between 4.75-7.00% for the next several months. The RBI may keep rates on hold, but the market can push yields lower towards 8.30-8.25% in the coming weeks.

DATA TODAY

8:30 GMT or 14:00 IST UK BOE Minutes
...Expected 0-0-9 % ...Previous 0-0-9 %

12:30 GMT or 18:00 IST US Current Account Balance
...Expected -96.00 $ Bln ...Previous -81.10 $ Bln

18:00 GMT or 23:30 IST US FOMC Meeting
...Expected <0.25 % ...Previous <0.25 %


DATA YESTERDAY
UK CPI Y/Y
...Expected 1.70 % ...Previous 1.80 % ...Actual 1.50 %

US Core CPI (MoM)
...Expected 0.20 % ...Previous 0.25 % ...Actual 0.22 %

US Housing Starts (Mln)
...Expected 1034 K ...Previous 1071 K ...Actual 1001 K