Market Morning Briefing

GOOD MORNING!

STOCKS
The markets got a boost from the rising confidence in the US housing industry, hitting a 7-month high, and improved state of affairs regarding Iraq & Ukraine. The equity rally was well supported by a selloff in the bonds, suggesting risk-on.

Dow (16838.74, +1.06%) is hitting the higher end of our supply zone in 16800-50 and if any selling pressure doesn’t emerge immediately, then 16950-17100 would be a more probable target. Dax (9245.33, +1.38%) faced a very sharp rejection from the long term resistance area of 9300-400 last Friday, not repaired yet by the Monday rally. As long as the index trades below the modified resistance in 9400-600, the long-term risk will be on the downside.

Nikkei (15467.41, +0.95%) didn’t confirm the probable bearish scenario expected and rallied higher with the other markets. Now a break above 15500-50 may help it to run up further in absence of any bearish pressure. Shanghai (2238.60, -0.04%) is trading above the previous consolidation zone of 2180-2230 and the bullish momentum targeting 2260-70 remains intact above 2230-25.

Nifty (7874.25, +1.06%) hit a fresh high as expected and may reach 7975-8000 now, where the price action will again determine the next course of action. With the market breadth improving in the last two sessions, the rally looks a bit more sustainable now.

COMMODITIES
The big news in Commodities is the dip in Brent (101.81) below 102, contrary to our expectation of a bounce towards 105-106. A further fall towards 100 may be possible now, but Short-covering may well be expected there. The Brent-WTI Spread (5.06) has also come off sharply from 8.1 seen on 7th August and can fall further towards 4 and 3. The easing of Brent could be a big positive for the Rupee.

Gold (1299) has come off as the Resistance at 1320 has held as expected. In the bigger picture, however, it is consolidating sideways between 1275-1355. This range can well hold for the next couple of weeks.

FOREX
The rally in stocks or selloff in bonds didn’t have any discernible effect in the Currencies. Nearly all of the majors except Sterling keep trading in ranges and a breakout is required to shake them out of this sleep.

Euro (1.3357) remains unchanged in a contracting range taking a triangular shape, with boundaries coming at 1.3450 and 1.3330. If a break above 1.3450 doesn’t take place immediately, expect a sharp selloff towards 1.31 anytime now.

Dollar-Yen (102.62) is trading in the contracted range of 101.50-103.00 and the range bound price action doesn’t look like ending anytime soon. Euro-Yen (137.06) is stuck just like the comatose Yen & Euro. It has been approaching the upper end of its downward channel on the back of weak Yen but the range of 135.75-138.00 may not break without any major event.

Pound (1.6680) bounced just as expected and can rise some more to 1.68 but the downtrend remains in force below the major supply zone in 1.6770-6850. Till then, every bounce faces the risk of a sudden selling pressure.

Aussie (0.9335) is rangebound like many other currencies and may continue to trade in the narrow range of 0.92-0.9350 for a few more sessions if the bullish momentum doesn’t catch right now. The probability of the broader range of 0.92-0.95 breaking any soon looks very slim at this moment.

Dollar-Rupee (60.7650) reached very close to our target level of 60.70-50 on the day we expected it. Watch Support at 60.50-40 today. Bunched-up Inward Remittance flows, together with a strong Nifty could put pressure on the downside.

INTEREST RATES
With the Russia-Ukraine Money crisis easing a bit, money seems to be flowing back from Bonds into Equities. The German 10Yr (1.01%) is back up above 1.0% and the US bond yields (5Yr 1.57%, 10Yr 2.39%, 30Yr 3.20%) have all moved up compared to Friday's levels of 1.57%, 2.36% and 3.14% respectively.

That said, our earlier scare of higher interest rates in the USA has subsided quite a bit. The US CPI data today (last 1.96%, expected 1.90%) is expected to come down. The long-term chart (please see http://www.kshitij.com/fundamentals/funcharts/uscpi.shtml) is shows a decline that could target 1.75% in the longer term. In this light, Bond yields may not rise much now.

The German-US 2Yr Spread (-0.43%) is not being able to rise past -0.40% and this could be keeping the Euro (1.3355) below 1.3400 as well. In India, the 10Yr GOI (8.5196%) may try to break below 8.50% in the coming days but could see an initial bounce towards 8.57-8.60% before that. Have to see how the market behaves today after the long weekend.

DATA TODAY

8:30 GMT or 14:00 IST UK CPI Y/Y
...Expected 1.80 % ...revious 1.90 %

9:00 GMT or 14:30 IST EU EA (17) Curr Acct Bal EUR Bln
...Previous 8.90

12:30 GMT or 18:00 IST US Core CPI (MoM)
...Expected 0.20 % ...Previous 0.05 %

12:30 GMT or 18:00 IST US Housing Starts
...Expected 970 K ...Previous 893 K


DATA YESTERDAY
CN Foreign Direct Investments (YoY)
...Previous 2.20 % ...Actual -0.35 %

EU Trade Bal
...Previous 15.30 EUR Bln ...Actual 13.80 EUR Bln