Weekly Market Outlook

September 19, 2016Posted By Admin

NIFTY REBOUNDS FROM 34-DMA SUPPORT; FED, BOJ IN FOCUS THIS WEEK

THE WEEK GONE BY

US equity indices pared opening gains while European and Asian equities ended deep in the red in the week gone by, mainly on the back of the fear of hike in interest rate in US and fall in oil.

For the week, Dow eked out 0.2% gain, S & P 500 rose 0.5% while Nasdaq soared 2.3%. Nasdaq was mainly supported by big gains in Apple, which soared more than 11% for the week on strong iPhone 7 sales.

Europe ended deep in the red, with key markets falling 1%-3.5%. European Banking stocks were additionally pressured after U.S. Department of Justice asked the German lender, Deutsche Bank, to pay $14 billion to settle allegations of mis-selling mortgage securities. Bank of England left interest rates unchanged at 0.25%. The central bank raised its third-quarter growth forecast however to 0.3% quarter-on-quarter from a previous estimate of 0.1%. It also said inflation would rise to the bank’s 2% target in the first half of 2017.

Asian markets too fell with Nikkei and Shanghai down 2.6% and 2.5% respectively while Hang Seng fell 3.2%.

WTI crude fell nearly 6% for the week to $43.19 after International Energy Agency (IEA) said that it may take longer for oil prices to re-balance, citing a faster-than-expected slowdown in global oil demand growth.

Dollar index rose 0.7% to 96.04. Gold was down 1.6% to $1313 per ounce.
AT HOME

Indian indices, after opening the week with a big cut, recouped some of the losses through the volatile week and finally ended down by a percent.

FIIs net sold stocks, index futures and stock futures worth Rs 58 cr, 1314 cr and 2731 cr respectively. DIIs were neutral.

Rupee depreciated half a percent to 66.98.

August CPI fell sharply to 5.05% y-o-y from 6.07% in July, thanks to a sharp fall in food inflation, which slowed to 5.91% from 8.35%. Separately, July index of industrial production came in at negative 2.4%, compared to 1.95% (revised) in June and an expectation of 1.37%, driven mainly by weakness in capital goods. Wholesale price inflation, as measured by WPI, rose to 3.74% in August from 3.55% in July and -5.06% in August 2015. Larger than expected fall in consumer inflation and poorer industrial production raised expectations for a rate cut in October policy review by the RBI.

India’s trade deficit in August narrowed 38% y-o-y to $7.674 bn while figure for July was $7.76 bn. Exports fell 0.3% y-o-y to $21.5 bn while imports were down 14.1% y-o-y at $29.2 bn.

Oil marketing companies hiked petro price by 58 paise/litre but cut diesel price by 31 paise.

The India Meteorological Department (IMD) in its weekly monsoon update issued on 15 September 2016 said that for the country as a whole, cumulative rainfall during this year’s monsoon season so far from 1 June to 14 September was 5% below the long period average (LPA).

Tata Steel reported a consolidated loss of Rs 3183 cr for June quarter compared with Rs 317 cr in same period last fiscal, dented by discontinued operations. However, pre-exceptional underlying profit before tax stood at Rs 1080 cr against loss of Rs 234 cr in preceding quarter. Revenue fell 5.8% to Rs 26406 cr. Operational performance was very strong, with consolidated EBIDTA rising 21.4% to Rs 3270 cr due to improved operating performance across India, Europe and South East Asia. EBIDTA margin expanded 520 bps q-o-q and 280 bps y-o-y to 12.4%. Standalone profit shot up 35.3% to Rs 575 cr and revenue grew by 1.5% to Rs 10324 cr.
OUTLOOK

The most important event to watch out next week would be the outcome of the US Federal Reserve’s two-day meeting, which starts Tuesday and ends Wednesday. The benign rate environment has helped fuel major U.S. stock indexes to all-time highs in July and August and in the days leading up to Wednesday’s policy announcement, market volatility has spiked following two months of relative calm.

Most of the market participants expect the Fed to hold off on an interest rate hike until December, following a batch of downbeat economic data including August retail sales and industrial production released this week, mixed messages from Fed officials and as polls show a closely contested race in the US presidential election that is fast approaching.

However, more members of the Federal Open Market Committee clearly favor raising rates, so the Fed forecast on both rates and the economy will be important.

Bank of Japan is also slated to review its policy on Tuesday and Wednesday. Here, speculation points to a possible interest rate cut deeper into negative territory, tweaks to its assets purchase program or new rules on the duration of securities it will purchase in the bond market. If the BOJ decides, as the ECB did, to merely maintain the status quo, speculation that central banks globally have run out of ammunition will likely intensify.

Indian markets, in the absence of any major domestic cues, will mainly dance to the tune of the global markets and will keenly await the US Fed decision.

Technically, 8860, the upper level of the gap created by the big gap down opening on Monday, is the immediate hurdle to eye, above which 8969, the top made last week, would be the bigger resistance to tackle. On the way down, 8690, this week’s low, which also coincided with the 34-DMA, is the important support to eye, a breach of which will also confirm a lower-top lower-bottom formation on the daily chart. 8544, the bottom made towards end of August, would be the next support as well as downside target if that happens. Traders are advised to wait for the breach of 8860 before taking a fresh bullish view and violation of 8690 before taking a fresh negative view.