STAY LIGHT AHEAD OF THE BIG FED DECISION
US indices soared 1.2%-1.4% yesterday, eyeing some of the final data reports leading into the Federal Reserve's highly-anticipated two-day meeting that kicks off on today.
August retail sales showed an increase of 0.2%, missing expectations of a 0.3% gain. Ex-autos, the figure increased 0.1%. July retail sales were revised up to 0.7% from 0.6%. August industrial production data showed a decline of 0.4%, worse than the expected 0.2% drop. The Empire State Manufacturing Survey came in at negative 14.7 for September, versus August's read of negative 14.9.
Nymex oil gained 1.3% to settle at $44.59 a barrel.
Treasury yields jumped, with the 10-year yield at 2.28% and the 2-year yield hitting a four-year high of 0.80%.
Earlier, Shanghai Composite closed down 3.55% as concerns about China's economic outlook continued to take a toll.
European markets reversed early losses to end with gains of 0.6%-1.6%. Closely-watched German ZEW economic sentiment index dropped to 12.1 points in September from 25.0 points in August, with weakening emerging markets dampening the outlook for the euro zone's biggest economy. Data from the Association of European Automobile Manufacturers showed new car registrations rose 11.5% year-on-year in August.
Benchmark indices ended lower by six tenth of a percent in today's trade, breaking the two-day winning streak. Sensex settled at 25706, down 151 points while Nifty lost 43 points to finish at 7829. BSE mid-cap and small-cap indices lost 0.6% and 0.8% respectively. Except a 0.8% and 0.03% rise in BSE FMCG and IT indices respectively, all the BSE sectoral indices ended in red with Metal and Capital Goods indices leading the tally, down 2.3% and 2.1% respectively.
FIIs net sold stocks worth Rs 911 cr but net bought index futures and stock futures worth Rs 257 cr and 349 cr respectively. DIIs were net buyers to the tune of Rs 481 cr.
Rupee depreciated 4 paise to end at 66.3625/$.
India's trade deficit for the month of August stood almost flat at USD 12.48 bn against USD 12.81 bn month-on-month. Imports dipped 10% to USD 33.74 bn. Export fell 8% at USD 21.27 bn, the lowest level since October 2010.
Today morning, Asian market, except a marginally lower Shanghai, are trading with gains of upto a percent and half and SGX Nifty is suggesting about 70 points higher opening for our market.
In yesterday's report we had reiterated the upside target of 7965 and had recommended a stop loss of 7770 for trading longs. These continue to be relevant levels for today.
However, considering the fact that we are closed tomorrow ahead of the big Fed decision, traders would do well to lighten trading positions.
There are various combinations being speculated. Whether there is no tightening and indication of continued data dependency, or no tightening and some signal pointing to a December move and finally a tightening and a dovish signal to control the longer-term rate market. Currently markets are working with possibility of the second one.
An interest-rate increase by the Fed will cause emerging-markets currencies to weaken as the prospect of higher returns on dollar-denominated assets lures investors back to the U.S. Further capital flight could deflate equity and bond prices around the emerging world.