It is good to see emergence of strategic investor's value-buy support to global equity markets by moving money away from over-valued Gilts. DJI strong recovery from 15850 to over 16600 and sharp spike in US 10Y bond yield from 1.90% to 2.25% are signals of shift in investor risk appetite from risk-off to risk-on stance! Gold failure at 1st sell-zone of 1250-1265 for push back below 1230 and Brent finding support below 85 for pull-back into 87.50 add credence to expectation of dilution in near-term risks on the financial markets. DXY is back to stability at 84.75-86.25 unable to retain overshoot either way into 84.50 & 86.75. Strategic investor's cherry-picking and short-squeeze by traders have come to the rescue to bring some sense (and relief) into markets.
Can this relief sustain? As said, near-term trading range is seen to be cemented till fresh cues emerge either-way; DJI at 15850-17350, US 10Y bond yield at 1.90-2.40%, Brent Crude at 82.50-87.50, Gold at 1185-1265 and DXY at 84.75-86.75; if there are no significant triggers either-way, said ranges are there to stay into the near term and in back-and-forth mode into 2014 year end.
The dilution of external risks is a relief on Indian financial markets to ride on the domestic optimism. NIFTY has already set up bullish momentum on sharp recovery from above 7700 to over 8000 with firm undertone for near-term extension into 8150-8180 to complete back-and-forth of set near-term focus at 7700-8150. Investor interest to stay invested in Gilts ahead of rate-cut extends solid support for India 10Y benchmark bond at 8.35-8.40%; it is possible that 8.40% 2024 trading at discount is behind for shift into short term trading range of 8.15-8.40%. Despite all these positive cues, Rupee is in nervous mode unable to retain gains into solid resistance zone at 60.70/60.95-61.20 with equally solid protection at 61.70-61.95/62.20 to prevent downside excessive run.
Its gonna be very quiet ahead as markets (global & domestic) are expected to stay in sideways consolidation mode into end of 2014, post lot of fireworks since July 2013. It is time to take stock and plan for the future. There is no need to stay overly worried but it is important to stay glued to trending in macroeconomic fundamentals; policy rate stance of FED and RBI will be the major triggers going forward. My bet is on RBI rate-cut in early 2015 and FED rate-hike in 2nd half of 2015. So, need to tighten the seat belt now for roller-coaster rides in 2015!
Moses Harding
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