PRUDENT MORNING MANTRA - 05.09.2014

EURO TUMBLES, DOLLAR SURGES ON ECB SURPRISE; US NONFARM PAYROLL IN FOCUS

WORLD MARKETS

After moving higher in the initial trade, US indices saw a sustained downward move through rest of the session to end with modest cuts, as cheer over the European Central Bank's unexpected rate cut gave way to caution ahead of the monthly payrolls report.

The ECB lowered its benchmark interest rate to 0.05% from 0.15%, and cut its deposit facility to minus 0.2%, further penalizing banks for parking money at the central bank. The ECB also said it would launch a program next month to buy asset-backed securities.

Back in the US, ISM non-manufacturing index hit a nine-year high of 59.6 in August, versus 58.7 estimate. ADP said private sector added 204000 jobs in August, a tad lower v/s the estimated 220000 figure. Weekly jobless claims totalled 302000 vs. 300000 estimate. U.S. trade deficit narrowed in July to a six-month low as exports rose to a record.

European markets, except a flattish FTSE, gained between 1%-2.8% with Italy and Spain leading the tally. German factory orders jumped 4.6% in July and managed to beat market forecasts. Shares of BP fell sharply after a US federal judge ruled the company had acted with gross negligence in the 2010 oil spill in the Gulf of Mexico that killed 11 people.

Dollar index surged to 83.85, hitting a 14-month high while the Euro tumbled to 1.2996 against the dollar, the lowest since July 2013. Nymex crude fell 1.1% to $94.4 a barrel.

                                                             

AT HOME

After a heady run-up of past couple of sessions, it was consolidation time as benchmark indices, after falling nearly two third of a percent, recovered in last half an hour to end lower by a fifth of a percent yesterday. Sensex lost 54 points to settle at 27086 while Nifty finished at 8096, down 19 points. BSE mid-cap index gained 0.1% while the small-cap index lost 0.4%. BSE Realty index plunged 4.4%, becoming top loser among the sectoral indices, followed by 1.5% cut in Metal index. Healthcare and FMCG indices gained 0.5% and 0.3% respectively.

FIIs net bought stocks worth Rs 1698 cr but net sold index futures and stock futures worth Rs 591 cr and 677 cr respectively. DIIs were net sellers to the tune of Rs 555 cr.

Rupee appreciated 13 paise to close at 60.355/$.

OUTLOOK

Today morning, Asian markets are trading mixed with modest changes and SGX Nifty is suggesting a flattish start for our market. In yesterday's report we had mentioned that while the overall view continues to be bullish, consolidation in short term is likely, considering a near 600 point rise in last 16 sessions and a negative divergence on the hourly chart. That is what exactly happened yesterday.

The consolidation is likely to continue. Immediate support on the hourly chart continues to be around 8010, with the stop loss of which trading longs can be held on to.

Key data to watch out today would be US August nonfarm payroll which is expected to show an addition of 225000 jobs following July's gain of 209000 jobs. The unemployment rate is seen dropping to 6.1% from 6.2%

Also in focus would be peace talks between Ukraine's president and pro-Russian rebels. The separatists have said they are willing to sign a truce agreement if a political solution can be found for their region.