STOCKS
Contrary to our bullishness day before yesterday, Equities have run into fresh selling yesterday, following the release of the Fed’s FOMC Minutes, which suggested that the Fed is intent on 4 hikes in the next 12-14 months.
The Dow (25379.45), DAX (11589.21), Nikkei (22367.91) and Shanghai (2463.90) have all seen sharp falls, with the Nikkei and Shanghai falling the most.
Yet, there are chances of important Supports on the Shanghai near 2450, on the Dow near 25000 and on the DAX near 11300. If these hold, the Shanghai could be coming to the end of its decline since 3550 (Jan-18) while the overall uptrend in the Dow and the DAX might remain intact. The Nikkei looks the most bearish as a break below 22200 could open up 20000 in the long run.
We have to keep a watch on the KOSPI (2133.51), which is trading just below a super-crucial level of 2150. Unless the KOSPI manages to climb above 2150 again, it might be vulnerable to a deeper decline towards 1700 in the long term.
The Nifty (10584) and Sensex (34779.58) will likely open lower. Possibly, the crucial Supports at 10200-100 and 34000-33750 (respectively) might hold on first testing today.
That said, Equities as a whole would have to do some really hard work to recover from current levels to avoid some really debilitating bearishness. They may need help from US Bonds for that, which is looking a little iffy at the moment.
COMMODITIES
Good decline in WTI (68.97) and Brent (79.61) over the last two days despite the rhetoric from Saudi Arabia. However, we note presence of long-term Support at 68 on the WTI, which might well hold. In contrast, Brent has room to fall towards 75 as the Brent-WTI Spread (10.64) is very wide and a case can be made for a decline towards $9 and even lower in the coming weeks. Please see https://kshitij.com/graph-gallery/commodities/brent-vs-wti
Gold (1230.20) is consolidating between 1220-35, just below 1240. It looks bullish in the long term and dips to 1210 (if seen at all) could well attract buying. Note that the Gold-WTI ratio (17.84) has broken a long-term downtrend and looks bullish towards 19 at least. This is bullish for Gold, especially if the WTI remains above 68. Please see https://kshitij.com/graph-gallery/commodities/gold-wti
{Copper (2.738) could turn out to be bullish in the long term if it manages to remain above 2.70-60 in the near term. This would be interesting to watch. Keep an eye on the Shanghai alongside Copper. Maybe they will both bounce together?
FOREX
Watch out for crucial supports near 1.145 on Euro and 1.30 on Pound. Also watch super crucial level of 6.9633 on Dollar Yuan. If USDINR breaches 73.80, a fall to 73.00 could be negated.
Euro (1.1459) : Euro is testing crucial support near 1.145. It could test immediate resistance near 1.148 in today’s session. If it comes off from there again and closes the week below 1.145-1.144, it would be a bearish indicator for the near term. Alternatively, a break above 1.148 could take it to higher resistance near 1.1525-1.1550 next week.
Dollar Index (95.96) is testing crucial resistance on daily candles near 96. It could still rise to higher resistance near 96.25-96.50 on 3 day and weekly candles. A break above 96.50 could be very bullish.
Dollar Yen (112.33) – A break above 112.5 in today’s session could lead to a test of interim resistance near 113 on daily line chart next week. Immediate support is now at 112.0-111.80 – a break below that could open up lower support near 111.25 on daily candles.
Euro-Yen (128.73) now looks bearish towards support on daily line chart near 127, which could be tested in the next couple of weeks. It would be important to see if it closes below the 21 weeks MA (129.32) in today’s session – a close below that would confirm bearishness towards 127.
Pound (1.3021) is testing crucial support at 1.30 on daily candles. If it breaks below 1.30, a further dip to lower support near 1.2800-1.2775 in the next couple of weeks will become highly likely. A close below the 21 weeks MA at 1.3094 in today’s session would increase the possibility for such a break.
Aussie (0.7101) came off from the 8 weeks MA near 0.7154 and could again drop to 0.705 in the next 1-2 sessions . This is a crucial support, which if broken would open up lower levels near 0.7000-0.6975 in the near term. On the upside, 0.715 and 0.720 continue to be important resistances to watch.
Dollar Yuan (6.9347) broke above its Aug ’18 high of 6.9347 yesterday. The next crucial level to keep a watch on is 6.9633 (its Dec ’16 high) in case it breaches that level as well, it could become very bullish – which would be negative for EM currencies (including INR).
Dollar Rupee (73.60; offshore NDF @ 73.80): Watch resistance at 73.70-80 on USDINR. If it breaks, a fall to 73.20-00 in the near term is unlikely. While it holds, we can still hope for 73.20-00.
INTEREST RATES
India 10 year yield (7.91%) is testing resistance (earlier support ) near 7.90%. While it stays below this level, there will be decent chances of a further fall in the near term towards 7.80%-7.70% (lower support).
The US Fed’s FOMC minutes revealed that the Fed members are confident of strong US economic growth. In fact some Fed members even discussed the possibility that there could be a phase where the Fed goes beyond normalization of rates to a more restrictive stance. This can be regarded as quite hawkish. This in turn led to the US 10 year yield rising to 3.20% again.
The US 10 Year (3.17%) : Watch supports near 3.15% and then, near 3.10% for the US 10 year yield. While above that, there are chances of a rise towards the previous high of 3.25%-3.26%. Given below are some of the recent US data releases which have had an impact on US yields:
US Industrial production increased 0.3% in Sep, in line with expectations (this is the 4th straight month of increase). However, the 3rd quarter growth in Industrial production of 3.3% (annualized) is much lesser than the 5.3% growth in the 2nd quarter.
Moreover, Capacity Utilization stayed unchanged at 78.1% slightly below the expected 78.2%.
Earlier on Monday, US Retail Sales data had showed that the growth in Sep (0.1%) was much lower than the expected 0.6%.
These 3 data points could have had some bearish impact on yields but three other factors seem to be keeping yields elevated –
increased supply of US treasury bonds
US jobs report released yesterday showing job openings at a record high, indicating further tightening in the job market
The FOMC minutes turning out to be hawkish
We need to watch out for further more data releases on the US economy in the next couple of weeks and also developments on the trade war front. Any disappointment in economic growth indicators or a rise in trade war rhetoric could pull yields lower, increasing chances of a break below 3.15% on the US 10 year.
10 Year German-US spread (-2.75%) – has fallen below support near -2.725%. It could now move even lower towards long term support near -2.80%. A break below -2.80% (if it happens) would be very bearish.
German 10 year yield (0.42%) could fall further towards support near 0.35%-0.30% in the near term. A break of 0.30% (if it happens) would be very bearish.
