Disappointing US non-farm payroll data is positive for emerging markets as FED could delay the USD 120 billion taper program, excessive liquidity will drive emerging markets as inflows would rise. Emerging markets with commodity driven economies have already started tightening the monetary policies as much as rate hike of 50bps to 75bps amid fears of higher inflation, so, clearly inflation doesn’t seem to be transitionary. Historically, during the times of low interest rates/excessive liquidity, inflation had shot up to double digits in most of the emerging market economies including India. Having said that, September policy-meeting of FED would give more clarity on timeline of taper program and course of rate-hikes (as previously FED suggested end of 2022 or early 2023 would start tightening the monetary policy).
So, it all comes down to “what’s the view on Sensex & Nifty?” Well, just don’t go against the current gigantic bull momentum, that would be a fair answer to the question. Nifty has become the world’s best 2021 performing YTD index so far and would likely continue to maintain status for this year. Near-term there could be some profit-booking as the domestic markets rallied sharply as much as 7% in the last one month. Last week, Sensex & Nifty gained by 3.57% & 3.7% respectively as financial stocks and Reliance had driven the Sensex & Nifty to new highs.
Meanwhile, investors welcomed the news of India’s Services PMI rising from 45.4 levels in July 2021 to 56.7 levels in August 2021, pointing to the fastest growth of the country’s service sector in 18 months amid strong inflows of new work and improved demand conditions. The Indian economy expanded at a record 20.1% (Y-o-Y)in Q2 2021, in-line with market forecasts of 20%, amid a low base effect from last year.
Next week, market participants will look for ECB meeting for any clue on whether the central bank is ready to start reducing its massive PEPP asset purchase program. Chine will publish inflation data. Domestic investors will watch out for Auto sales and IIP output data.
FIIs/FPIs have invested Rs. 20.83 billion in August 2021 and Rs. 47.87 billion in September 2021. Foreign Institutional Investors (FIIs) Derivative Statistics have shown a rise in the open interest across index options, index futures, and stock futures. Implied volatility (IV) rose for call options and for put options in the last week. Rise in IV for call option and for put option shows unsteady support for Nifty at present levels.
Dow Jones and S&P 500 indices closed on negative note on Friday amid disappointing non-farm payroll data dented the demand. August 2021 payroll data was a key indicator for the FED to decide on the timeline of taper program. However, unemployment rate slipped to 5.2% from 5.4% and wage growth was better than expected. During the week, Dow Jones declined by 0.25%, Nasdaq gained by 1.55%, and S&P 500 up by 0.50%.
European indices closed on a negative note following the US opening market cues, poor non-farm payroll data capped the gains. Eurozone inflation estimates are at 3% which is decade high level is also a cause of concern for the investors. ECB meet in the next week will decide the course of massive PEPP asset purchase program. During the week, FTSE fell by 0.14% and DAX declined by 0.44%.
Gold prices rose more than 1.2% on Friday, a 2-1/2 month high supported by a weaker dollar after the disappointing payrolls report.
Brent crude prices touched USD 73 a barrel on Friday, prompted by a weaker dollar after a disappointing payrolls report. Hurricane Ida in the US Gulf of Mexico caused huge oil production cuts supported the Brent crude prices. During the week, Brent crude prices declined by 0.12%.
Global Economy
The number of Americans filing new claims for unemployment benefits declined to 340,000 in the week ending 28th August 2021, its lowest level since March 2020 and below market consensus of 345,000, as the labor market consolidated its recovery. The US unemployment rate dropped to 5.2% in August 2021, the lowest level since March 2020 and in line with market expectations.
The US trade deficit narrowed to USD 70 billion in July 2021, slightly below market forecasts of a USD 71 billion gap, mainly due to a drop in the goods deficit to USD 87.7 billion and a decrease in the services surplus to USD 17.7 billion. Exports were up 1.3% (M-o-M) and imports edged down 0.2% (M-o-M) to USD 282.9 billion, after touching a record high of USD 283.3 billion in June 2021.
The US economy added 235,000 jobs in August 2021, the lowest in 7 months and well below forecasts of 750,000 as a surge in COVID-19 infections may have discouraged companies from hiring and workers from actively looking for a job
The ISM US Services PMI fell to 61.7 levels in August 2021 from a record of 64.1 levels seen in July 2021, but beat market forecasts of 61.5 levels.
US crude oil inventories fell by 7.169 million barrels in the week ending 27th August 2021, a fourth consecutive period of declines and compared with market forecasts of a 3.088 million drop.
The Caixin China General Services PMI plunged to 46.7 levels in August 2021 from 54.9 levels in the prior month. This was the first contraction in services activity since April 2020, amid a surge in the Delta strain of COVID-19 cases in some parts of the country.
