Global Markets:
European and US markets continued to drift higher while awaiting Federal Reserve’s interest rate decision followed by a press conference tonight. ECB will do it tomorrow. There is a near unanimous consensus in markets that interest rates will stay close to zero in USA. Gold is also consolidating around recent highs
Calendar events:
India fiscal deficit and infrastructure output numbers will be out on this Thursday and Forex reserve position will be out on Friday. Fed’s interest rate decision is tonight and ECB will announce it tomorrow
India:
There has been some bad news overnight on economic front for India.
- First Axis Bank reported loss on account of COVID19 related higher provisioning. This is probably an early indication of what is in store for financial institutions and economy as whole. The economic shutdown will cause havoc.
- Then RBI governor’s comment that it’s going to be difficult for Government to meet fiscal deficit targets. The deficit target was actually raised higher in this year’s budget. Therefore, this comment probably points to a total breakdown of Government finances. This could also be a trial balloon floated by government to test how comfortable rating agencies are with raising deficit. Well that got shot down pretty quickly!!
- Fitch warned Indian Government on fiscal deficit slippages.
- Moody’s downgraded GDP growth to 0.2%. God knows what will be the actual growth rate when economy is almost totally shut for more than a month now.
A rating down grade will prove devastating for stock and also to bond markets. The sovereign bonds are holding up so far.
NIFTY -Technical Bias:
Price Action & Pattern:
Nifty sideways drift continues for now. But how long will the markets ignore the bad news hitting real economy? No one knows but right now, there is no clear direction in the markets.
Trade Ideas:
A credit strategy such as short strangle protected on the downside is appropriate. However, traders need to be on the guard and be ready to exit or adjust position’s delta if implied volatility spikes or price breaks out of range
Nifty broke out of diamond pattern. But still a 9k put and 10K call - short strangle would have made small amount of profit. Implied volatility fell