STOCKS
As we have been cautioning over the last few days the correction in the equity segment has begun. However, the pace and quantum of fall at the beginning of this corrective phase has been much bigger than we had anticipated. The Dow, DAX and Nikkei have declined below their interim supports and have room to fall further. Shanghai can also see a fall in the coming days as against our view of seeing a sideways consolidation. Sensex and Nifty had closed on a weaker note yesterday itself and can see further deeper fall today taking cues from the global markets. The SGX-Nifty (9614, -239, -2.43%) is down sharply indicating a wide gap-down open for the Indian indices today.
Dow (25128.17, −1861.82, -6.90%) has tumbled much deeper and also faster below 26000 that we had mentioned yesterday. While below 26000, the Dow can fall to 24500 in the near-term and eventually to 23000 in the coming weeks.
DAX (11970.29, −559.87, -4.47%) has declined sharply below 12500 and has tumbled towards 12000 as expected. This has negated the chances of seeing a further rise as mentioned yesterday. A further fall to 11600 is likely to be seen now while the index remains below 12500.
Nikkei (22140.44, −332.47, -1.48%) has declined well below 22500 and is heading towards 22000 as mentioned yesterday. 21500 is the next important support to watch and need to see if the index manages to bounce from there or not.
Shanghai (2907.75, −13.15, -0.45%) fell to a low of 2872 but has bounced-back from there. Our view of seeing a consolidation between 2900-2950 stands reduced now. Rather the index could see a fall to 2850 and then reverse higher again.
As we have been cautioning, the Nifty (9902, -214.15, -2.12%) has declined below 10000 yesterday and has closed on a weak note. A further sharp and deeper fall to 9600 is likely now following the sell-off in the other markets.
Sensex (33538.37, −708.68, -2.07%) on the other hand has declined below 34000 as expected. It can now head towards 32000 as mentioned yesterday.
COMMODITIES
US crude inventories rose by 5.7mln barrels for week ended 5th June rising to 538.1mln barrels as imports saw a boost after the arrival of supplies from Saudi Arabia. Additionally the comment by FED that the unemployment rate could reach 9.3% by end of 2020 and would take years to fall back put further pressure on prices. Crude has fallen and looks bearish for the very near term before an attempt to rise again is seen. Other commodities are also seen to trade lower than the levels seen yesterday. Gold and Silver have also dipped slightly but Silver may find support just below current levels and could bounce back while Gold is likely to remain steady. Copper has dipped too as expected and could fall some more before a fresh rise is seen.
Brent (37.99) has declined and could test immediate support at 37.50 which if holds could produce a bounce else we may well expect a further fall towards 35-33 in the coming week before a fresh rise is seen. Overall longer term view is bullish but the next few sessions could spend time in a corrective dip.
Nymex WTI (35.57) also could find support anywhere in the 35-32 region just now from where a bounce can be expected.
Gold (1732.30) has dipped too but may attempt to rise back to 1740-1760 levels again in the near term while above 1720.
Silver (17.60) has come down to test support near 17.50/30 as expected and while that holds we may expect a bounce back to 18+ levels in the near term. Downside is limited to 17.50-17.30 just now.
Copper (2.59) has fallen exactly as expected as resistance at 2.65 is holding well. Now we may expect a test of immediate support near 2.55/50 from where a bounce could again be seen in the medium term. For the near term, we do not expect a fall below 2.50.
FOREX
Dollar Index has bounced exactly in line with our expectation from 95.70 mentioned yesterday and could try to pull up Dollar Yen too along with itself. With this and the Euro coming down towards 1.1155, we may expect EURJPY to bounce back soon with limited downside from here. Pound and Aussie looks bearish for the near term and so does the Rupee and Yuan.
Dollar Index (96.85) has bounced back from 95.72, hitting the lower end of our mentioned 95.94-95.70 yesterday. Now that the index has risen significantly above 96 it may target 97.58 in the near term.
Euro (1.1289) re-attempted to rise above 1.14 but faced rejection from 1.14 itself and came off sharply from there. A fall to 1.1211 or even 1.1155 could be seen in the coming week before a bounce is seen.
EURJPY (120.60) has fallen sharply. A test of 119.40 looks likely in the near term before the cross starts to bounce back from there.
Dollar-Yen (106.79) has support in the 106.56-106.36 region which could provide some support and take the exchange rate higher in the near term. Also the rise in Dollar Index could take USDJPY higher.
Pound (1.2560) fell from resistance at 1.28 in line with our expectation and could be headed towards 1.24 in the near term. Near term vies is bearish.
Aussie (0.6824) has fallen below 0.6890 contrary to our expectation of seeing a sideways consolidation above 0.6890. A dip to 0.6732-0.6700 looks likely in the near term before a bounce is seen again.
China yesterday condemned the US military for the “provocative” flight of one of its aircraft over Chinese-claimed Taiwan, saying the move infringed upon China’s sovereignty and contravened international law. Also the trade relations between US and China is unsatisfactory as per a senior Chinese Government advisor and has their implementation of trade deal has faced a hit after the coronavirus pandemic. USDCNY (7.0849) rose again and is trading higher. Near term looks bullish towards 7.10/12.
USDINR (75.79) broke above 75.75, as we have been cautioning for the last few sessions. The weakness in Rupee could gain momentum with the combined effect of a weaker Euro and Yuan along with weakness in Sensex and Nifty although the last couple of weeks that saw strength in the same indicators did not manage to pull USDINR down significantly as RBI intervened to keep the exchange rate higher. In the near term we expect a test of important resistance at 76 above which a possible extension to 76.30 is likely.
INTEREST RATES
The strong sell-off in the equities has dragged the US Treasury yields sharply lower below their crucial supports. The chances of seeing a further rise that we had been expecting stands reduced now. The Treasury yields can fall further. The German yields have also come down sharply. Crucial supports are coming up which need to hold in order to keep the chances alive of seeing a fresh leg of rise. The 10Yr GoI has bounced from the key range support and is likely to move up within the preferred range now.
The US 2Yr (0.20%) and 5Yr (0.32%) Treasury yields remain stable. But at the far-end, the 10Yr (0.67%) and 30Yr (1.41%) yields have come down further sharply breaking below their key support levels of 0.70% and 1.47% respectively. The chances of seeing a rise to 0.80% on the 10Yr and 1.7% on the 30Yr stands negated now. The outlook is bearish and the 10Yr can dip to 0.58% while the 30Yr has room to test 1.25% on the downside.
The German 2Yr (-0.67%), 5Yr (-0.64%), 10Yr (-0.42%) and 30Yr (0.06%) yields have declined sharply across tenors 0% on the 30Yr and -0.45%/-0.50% region on the 10Yr are crucial levels to watch. A fall below these supports will negate our bullish view of seeing a bounce. In turn such a fall can drag the yields further lower to -0.60% (10Yr) and -0.10% (30Yr) going forward. We will have to wait and see.
The 10Yr GoI (5.9897%) tested 5.95% and has bounced-back from there as expected. A further break above 6% can take it higher to 6.05%-6.10% in the coming days. Broadly, our preferred range of 5.95%-6.10% is likely to remain intact. For now the chances of seeing a deeper fall to 5.90% mentioned yesterday stands reduced.
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