WORLD EQUITIES TUMBLE ON US INTEREST RATE HIKE FEARS; NIFTY HEADED TO 8730-8690 SUPPORT AREA AFTER BREAKING 8870 SUPPORT

WORLD EQUITIES TUMBLE ON US INTEREST RATE HIKE FEARS; NIFTY HEADED TO 8730-8690 SUPPORT AREA AFTER BREAKING 8870 SUPPORT

WORLD MARKETS                             

US indices nosedived 2.1%-2.5% on Friday, posting their biggest single day fall since June 24, on fears of a looming interest rate hike by the Federal Reserve.

Boston Fed President Eric Rosengren, in a speech, said that low interest rates are increasing the chance of overheating the U.S. economy. Gradually tightening monetary policy is appropriate to maintaining full employment. Dallas Fed President Rob Kaplan, a nonvoting member of the Fed's committee, said in another speech the case for a rate hike has strengthened in the past few months.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded more than 30% higher, near 16.4.

Oil prices tumbled nearly 4% with Brent down $1.98 at $48.01 and US crude down $1.74 to $45.88.

U.S. Treasuries fell with the two-year note yield near 0.79% and the benchmark 10-year note yield around 1.67%. The U.S. dollar index rose to 95.35 from 94.94.

European markets fell 0.8%-1.3%. Data from Germany showed exports fell 2.6% in July. Yields on 10-year German Bunds turned positive for the first time since June 22.

For the week, US indices fell 2.2%-2.4%, marking the worst week since January. In Europe, FTSE fell 1.7% while DAX and CAC were down around 1.1%. In Asia, Hang Seng climbed 3.6% while Nikkei and Shanghai added 0.2% and 0.4% respectively. WTI posted a weekly gain of more than 3%.

AT HOME

The week ended on a negative note as benchmark indices plunged nearly a percent, suffering the worst fall in a month. Sensex settled at 28797, down 248 points while Nifty lost 86 points to finish at 8867. BSE mid-cap and small-cap indices fell 1% and 0.5% respectively. BSE Metal and FMCG indices tumbled 1.8% each, becoming top losers among the sectoral indices while Oil & Gas and Energy indices added 0.9% each, becoming top gainers, followed by 0.4% rise in IT index.

FIIs net sold stocks, index futures and stock futures worth Rs 315 cr, 372 cr and 1643 cr respectively. DIIs were net sellers to the tune of Rs 328 cr.

Rupee depreciated 26 paise to end at 66.68/$.

For the week, Sensex and Nifty gained 0.9% and 0.6% respectively.

OUTLOOK

Today morning Asian markets are down 1%-2% and SGX Nifty is suggesting about 135 points lower start for our market.

In Friday's report we had suggested that "Traders would do well to book some profit in longs and raise stop-loss in remaining positions to 8870, which is now the immediate support on the hourly chart." The benchmark plunged to 8859 before closing at 8867 on Friday, breaching this support.

A big gap down opening today would take Nifty close to 8730 mark today. Readers would recall that 8730 was the upper level of the erstwhile 8540-8730 consolidation phase and hence it should now act as the support on the way down. Below that you have 20 DMA and 34-DMA placed around 8720 and 8690 respectively, which makes 8730-8680 an important support area.

Traders would do well to keep volumes low and let the Nifty settle down before taking a fresh call.

IIP for July will be released today and is expected to show a growth of 1.37%, down from 2.1% growth registered in June. CPI for August will also be out today and is expected to cool down to 5.13% from July's 6.07% level.

Tata Steel will report its quarterly earnings today.