Premarket analysis: 04 August 2020
Global market risk-on mood is intact
Global economy continues to rebound
Indian economy has stalled
Mutual funds continue to sell in cash market
Unresolved border standoff with china
Global Markets: -Positive
Manufacturing Purchasing manager’s Index that came out yesterday was positive for all the regions. Manufacturing in Asia, Europe and US did better than June and indicated economies have moved into expansion territory. The equity indices in US and Europe reacted positively for the news. The emerging market assets traded in US however paused and went sideways.
Risk assets: High yield bonds paused near its top. The Emerging market equity ETFs, local government bonds of emerging Asia were in sideways coil. Industrial metals index advanced in line with growth expectations.
Safe heaven assets: Dollar index after having worst month in a decade retraced some of its losses. Japanese yen fell and easy money is still pushing gold higher. Volatility indices were down in US while India VIX was up.
ASIA this morning: - Green
Most of the Asian markets are trading in green this morning. Chinese markets are expectation which are trading slightly in red due to US-China trade tension. European and US futures, after a sharp raise yesterday are trading flat in the Asian session. SGX Nifty is trading about 50 points above yesterday’s Nifty future close.
India manufacturing PMI released yesterday was below expectations. Services PMI will be released tomorrow.
Godrej consumer products will declare their results today.
India: - Local issues
The better than expected quarterly results are already priced in the markets. However, leading indicators and incoming data on the economy is upsetting markets. GST Collections, Fuel consumption and the manufacturing purchasing manager's index for the month of July are all below expectations.
Manufacturing PMI for the most of the major economies had moved into expansion territory but for India it went deep inside contraction territory. This is casting doubts on economic recovery in the absence of real stimulus. The government however is severely constrained due to higher deficit. It is actually fighting to contain deficit instead of spending and lifting economy. Markets are coming to the term with the view that Indian economy will be lagging behind other major economies for some time.
FIIs who had supported with copious buying last month may not offer similar support this month as they could find better growth markets. Domestic institutions such as mutual funds on other hand are constrained due to continuous withdrawal pressure.
The FIIs are still holding long position in derivatives segment but they have reduced it greatly. The DIIs, large proprietary traders are still holding short position.
How will Nifty perform today?
The market is likely to react to the global risk on mood and open in positive territory. Sustaining the positive momentum is going to be difficult during the day. FIIs bought heavily into Bandhan bank block deals yesterday. They could moderate their buying or even start selling that may add more pressure on markets.
NIFTY -Technical Bias: Turned negative
Nifty price action:
Nifty failed to sustain the upward momentum and it broke down from the rectangle consolidation pattern yesterday. The down move was decisive. Day candle without upside or downside wick is called marubozu which means bold man in Japanese. This formation is bearish and nifty is likely to go down further.
Support: 10800 and then 10500
Resistance: 11050 K. The previous support is now resistance
Chart with decisive price action:
Bank Nifty has broken down from a major support. Even the up move from April /May bottom was not convincing and it was not as good as Nifty’s. Therefore, Bank Nifty is likely headed sharply down in couple of days. However it could pause for a day or two on its downward journey.
Traders should look for opportunity to trade on downside.