Thread by @mosesharding

Global Markets this week: Comfort from developed markets is no tailwind cheer for India!

US Presidential election gets near, and rally in US equities & Gilts gets bigger!

NASDAQ leads the show with upside break at 10350-11000 (high 11126) building steam for 11850-12350...1/N

S&P500 bounce from 2950-3000 hit target 3350-3400 (high 3353) and set for new high above 3393 towards 3650-4000.

DJIA is into catch-up act inching up from 26500-26650 to over 27100 with pull bias towards all-time high 29568.

Last mile uptrend intact & into extended one...2/N

When post-Covid outlook was for hold between 2019 close & Feb’20 high, US equities punching new highs is extraordinary, and prudent to be on chase with trail stop of 3-5% correction from the peak.

Combination of more stimulus & FED Fund rate around 0% keeps undertone good...3/N

It’s risk-on in US Treasuries as well with 10Y yield down from 2019 close 1.92% (Jan’20 high 1.95%) to hit 0.50% & steady at 0.50-0.65% pushing towards last mile 0.35-0.50%.

Take comfort from extended around zero rate policy (-0.25% to +0.25%) for stability at 0.35-0.65%...4/N

It’s over 1000 points drop on USD Index DXY from 103 to 92.50 (between March & now), down below 2019 close 96.39! It suits Trump’s “global to local” policy while promoting US exports by reversing USD appreciating trend from Feb’18.

Undertone good for 90/91.50-95/96.50...5/N

USD interest rate alignment with EURO and resultant carry-trade unwind lifts EUR/USD up from 1.0650 to 1.1650/1.1725-1.1925/1.20. While above 1.15-1.1650, pull bias is towards 1.2150-1.2500.

USD/JPY relatively steady at 105-106.50 of comfort range 103.50-108.50...6/N

Gold hit high at $2075 and looks heavy for push back into $1965-2000 which needs to hold for stay at $2000/2035-2165/2200. But given risk-on mode on equities & Bonds (against $ stability) need caution on “longs” from here.

Brent Crude in comfort mode at $40/42.50-47.50/50...7/N

The Indian context:

External tailwinds support from risk-on US equities & bonds, weak $ and steady Brent Crude is largely offset by domestic headwinds from woes around growth-fiscal and banking sector-credit flows. Cheap money from RBI couldn’t work without fiscal steroids...8/N

Demand on @FinMinIndia is huge from Recapitalisation for banking sector stability and Cash or backstop guarantee support to worst-hit businesses, both needed to get the confidence back on the economy.

Execution comfort on resolution plan of moratorium loans is not good...9/N

Major discomfort is around (a) ability to arrive at mutually acceptable terms when both short of bandwidth, one squeezing the other (b) maximum 2 years of extension, not good to recover cash losses (c) 30 days NPA classification norm, if BAU not established by end of FY21...10/N

#Nifty back & forth mode at 11341/11299-10882/10908 is reflection of nervous & indecision on equity risk. Nothing new to add & retain focus at 10850/10915-11285/11350 keeping downside risk valid for 10350-10500 (stop at 11500). Undertone remain between risk-off & light...11/N

#banknifty retaining play at 21000-22000 (intermediate zone of 19500-23500 tolerance range) is good when most odds are against and worse when Gilt yields are looking up. Retain downside risk valid into 19500-21000, risk-off zone down from 23150-23500 to 22150-22500...12/N

There’s no good news for Gilts from the policy review. Given operating policy outlook at 3.15-3.50%, 10Y bond 5.79% 2030 yield prepare for outside break at 5.80/5.825-5.90% and so is 5.77% 2030 at 5.75/5.775-5.85% (both under pressure into 5.85-6%), and see RBI at 5.95-6%...13/N

FX markets stability is the joker in the pack, USD/INR stuck at 74.85-75.15 finding comfort at 74.50-75.50 (of big picture 73.50-76.50). See @RBI rate administration here, hence good to be in back & forth mode, while EUR/INR in sideways mode at 86.50-90. FPI risk diluted...14/N

@RBI policy event is behind and attention on NPA impact from C-19 mortality loans, which is distant away. Till then, dilemma is between to hold risk or stay in cash, while traders playing the external traction.

Any pleasant surprise could only be from @FinMinIndia ...15/15