Market Morning Briefing

GOOD MORNING!

STOCKS
It seems to be a season of stimulus as ECB reiterated its intent of balance sheet expansion by aroundEuro 1.0 trillions. This was further boosted by PBOC's surprise, and bit shocking rate cut of 40bps, its first rate cut since 2012. The two giant economies afflicted by low growth and credit off-take on one hand, and fast rising bad loans and banking risk on the other, have made their intent clear.

Dow (17,810.06, +0.51%) closed at its all time highs, and another strong weekly candle. Next stop forDow is at 17,950 and 18,300.

Nikkei (17,357.51, 0.33%, Friday close) moved up after testing the support of 17,100. The PBOC's surprise rate cut from its important trading partner is not yet factored in to price as it is a holiday. We expect Nikkei to break into new highs when it opens for trading tomorrow. The first target would be 17,700, followed by 17,850. Resistance is at 17,500.

Shanghai (2,531.44, 1.8%) was boosted by PBOC's surprise rate cut. The longer term trend outlook forShanghai Composite is very bright and every correction is a buying opportunity. The first short term targets are 2,555 and 2,600.

Dax (9,732.55, 2.62%) rallied hard on Draghi's dovish comments, taking it above the crucial pivot level of 9700. The bear case on Dax is invalidated, and it is further confirmed by sustained trade above 9700. Above 9700, we look for new highs above 10000, its Jun-Jul-2014 tops. The resistances are at 9900 and 10000. The first resistance in the new-high region is at 10,150, followed by 10,350 and 10,550.

Nifty (8,477.35, 0.90%) showed another strong weekly close. It's traded the highs of 8,490, very close to our 8,500 targets. Nifty could easily move up above 8,500 levels but studies show that we could see good selling coming in above 8,500 levels. We would advise caution above 8,500 levels.

COMMODITIES
Will Gold (Spot, 1200.81) which is testing a crucial Resistance band at 1200-10 and has risen well from 1131 through this month, be able to capitalise on China's rate cut and the ECB's promise to bring back Inflation push commodities higher? Chances 50-50. Maybe we see consolidation between 1185-1215 for a few days before either further rise towards 1240 or fall back towards 1160.

The Gold-Silver ratio (73.04) has come off sharply from the high of 75.50 earlier in the month. It is testing an important Support now and needs to bounce sharply from here to retain the overall uptrend from the Sept lows near 65.64. This would be important to push Silver (Spot 16.42) back below 16.15 and back into the overall downtrend since 21.57 (July). Else, Silver is threatening to break the downtrend and rise past 16.60. Need to watch this.

Brent Futures (80.53) might have made a Double Bottom on the Daily chart. Confirmation (if obtained) in form of rise past 81.60 could take the market much higher towards 83.90. Could be a good Long trade here. 

Copper (3.0420) has been ranging sideways largely within 3.00-3.05 through the month within an overall bearish trend with strong Resistance near 3.10. Maybe Copper will not oblige the Inflation-Desires very soon. What a world we live in?!

FOREX
ECB wants a lower Euro, Abenomics is based on lower Yen and PBOC cuts rates sharply to depreciate Yuan. In other words, Dollar is winning because no one else is fighting. Welcome to the latest round of currency wars.

Euro (1.2385) dropped sharply on Draghi's comments but bounced just a pip above from its Nov 7th low. Below 1.2355, the support levels are at 1.2250, 1.2200 and 1.2050.

Pound-Dollar (1.5656) gets increasingly weaker as Euro loses ground, despite some gains in Euro-Pound (0.7910). In short term, Pound-Dollar will trade weak as long as it stays below 1.5800. The first target and support on the downside is 1.5450.

Dollar-Yen (117.57) needs consolidation after moving up from 105.5 in mid-October. We expect this pause below the substantial resistance zone of 118-handle will keep uptrend in check.

Dollar-Rupee (61.7625) came down sharply after the test of 62.20 resistances. Today, we could see a further drop to test its support at 61.50. 

Aussie-Dollar (0.8697) was boosted by surprise rate cut in China, its principal trade partner. Aussie is effectively back within its extended range of 0.8900-0.8550.

INTEREST RATES
The 10Yr GOI (8.1683%) is holding above the crucial 8.15% Support for now but is still in a steep downtrend for now. With China having reduced interest rates last week, the RBI will have a really tough time withstanding the pressure to cut rates on 2nd Dec. We, of course, are of the view that the RBI should not/ will not cut rates. Indian growth has to come from Investments and Efficiency gains, neither of which are constrained by Interest rates per se.

German Yields continue to firm up/ bottom out at the Near end while the Middle and Far sections of the Curve are still headed lower. The Oct-14 European CPI (released on 14-Nov) was 0.37%. A rise past 0.50% is the minimum Draghi and the markets will be wanting to see in the next couple of releases to start thinking that Europe could escape fresh deflation. Retail Sales looks worrying. Take a look at 
http://www.kshitij.com/fundamentals/funcharts/euretail.shtml and 
http://www.kshitij.com/fundamentals/funcharts/eucpi.shtml

Yields in the USA are stabilising in line with expectations. The 10Yr (2.31%) may oscillate between 2.20-40 for the next couple of weeks. Overall Curve flattening may continues.

DATA TODAY

9:00 GMT or 14:30 IST GER IFO Business Climate 
...Expected 103.4 ...Previous 103.20 

9:00 GMT or 14:30 IST GER IFO Business Situations 
...Expected 108.20 ...Previous 108.40 

9:00 GMT or 14:30 IST GER IFO Business Expectations 
...Expected 98.5 ...Previous 98.30


FRIDAY'S DATA:-
CA Inflation Y/Y
...Expected 2.0 % ...Previous 2.0 % ...Actual 2.4 %