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- US CPI numbers for April at 8.3% are lower than March at 8.5%, so market is rejoicing and enjoying the party. But question is – is the euphoria justified?
- That’s what I am going to argue today despite being termed over bearish in market, which I am not. Though a dreamer and a forward thinker who’s got ability to foresee future events, in projecting markets I am a realist and grounded as well
- US 10y has dropped below 3.00% to 2.89% after knocking at 3.20% and in US parlance 30bps is a very big number. Don’t look at the 10y movement alone, there is a need to look at 2*10 spread even, which has narrowed down to 25 bps, signifying that 2y has not dropped in tandem with 10y paper, so the move is more temporary in nature
- Prior to data release, during this week some of the Fed officials had indicated that while for a couple of policies the hike may confine to 50bps but beyond July or may be September the quantum may be inadequate
- Even the market had anticipated that any CPI number above 8.10% for April may swing odds in favour of 75 bps hike earlier than expected and that’s the reason I’m saying the euphoria is a bit early and I will term this only as a technical pull back
- Dollar index is trading at 103.98 as with easing inflation numbers the dollar has weakened a bit vis a vis other leading currencies overnight. As I said for a day at least the data indicates a lesser hike and a positive for stocks
- Dow had reacted positive and traded in green but after some wide swings it closed in red towards the end losing , despite having some wide swings. It closed down by 325 pts or 1%. Even S&P tried to break range to close in green but ended 65 pts low or 1/6%. Nasdaq continues to lose big as it closed down by 375 pts or 3.1%
- Gold has slipped significantly again from USD 1900 lvls that it had touched last week, it slipped to USD 1840 but there was some recovery overnight as it closed at USD 1855. Crude is in the range as it closed at USD 107, a range it found over last week
- Quite often I tend to ignore Cryptos and get caught on the wrong foot. Last when I had seen the Bitcoin level it was at 35k trying to pull back. It has shifted gears but to slide rather than a pull as it has dropped down to USD 29,800. A naysayer on cryptos I will still not back them and realise the report that I had dismissed one when it was around USD 50k, predicting it to drop to 29k seems to have played out
- Coming to India – There is a significant swing in 10y g-sec yield as during the week its dropped to 7.21% after having touched a high of 7.47%. I will not say in tandem with US but some local factors seem to be at play
- Some easing in crude might have played its part but the market anticipation that RBI may go in for some bond buying to create space for further borrowing, sort of a G-sap has helped ease the yields
- The press briefing from RBI is absolutely clear that they are trying to avoid jerky moves in currency, ultimately all pandemic related steps will be reversed and it is on job to manage smooth transition of interest rates as well as borrowing, though to kill inflation it may have to kill demand
- INR / USD had some further recovery as Rupee closed lower 9 paisa to 77.25 vis a vis 77.35 the previous day. In terms of level it is too little but as I said earlier, the currency is overvalued vis a vis greenback and apparently even the central banker feels it should get reined in
- On the equities Nifty closed lower by another 70 pts and a/d ratio was again 1:5, a clear indication that market depth is very shallow. Some sort of value buying is evident in some select counters at current levels but the undertone is still bearish
- Though my view on markets has still not turned positive, but at around 16k level which was my initial expectation some value buying by long term investors is not ruled out. Despite having some concerns which are beyond market, I am stating one should look at some value buying at these levels. [Pls do read last four points as they carry a message – which I’m sure readers are smart enough to interpret]
- Where exactly I see the market, may be around 15,500 but before that a pullback towards 16,500 or even 17,000 is not ruled out. As I said on Monday also we are all doing a crystal ball gazing, trying to discount factors which are beyond our control and that’s why I say, the disciplined investment may continue – rest the benefits will be reaped only on reversal
- Coming back to some serious point – we are presently working in a dynamic regulatory environment wherein the collective dynamism seems to be at highest level. Various regulators are coming out with regulations which have it’s own positives in the long run but in the immediate future it can have severe ramifications – more of the teething issues in alignment and requiring change of habits basically
- I have always been appreciative and respectful of regulations as they have served the best interest of the markets. Be it introduction of Demat in 90s, the NDS / NDS OM in bond market in early Y2k and even the RTGS and CTS mechanism – see where have they taken the volumes. In the short run though volumes and margins take a dip
- As a professional I may be constrained to disclose certain developments but they may have wider ramifications about which the public at large must be aware of. Though information about such developments are available in public domain in piece meal their interpretation requires good amount of farsightedness and ability to anticipate, which I feel I am good at
- In Rewards of a Shortchanged Life, I have tried to elaborate extensively on the aspect of regulatory dynamism. Chapter 32 and more specifically page 262 and 263 captures the instances of regulatory dynamism, the cause and effect of the same as well. [in case you may wish to read in paperback follow the link – https://vikasmiglaniwrites.wordpress.com/my-books/; its also available on amazon as ebook]
Stay safe, stay healthy, God bless you all; have a great day!!
Vikas Miglani writes 