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Wednesday , 20 September 2017
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Robust CPI Could Cap the Nifty 50

The Nifty 50 was nearly unchanged as the global stock market rally appears to be running out of steam.  The index moved lower in the beginning of August, despite a 25-basis point rate cut by the Reserve Bank of India, who believed there was additional slack in the labor force. With inflation coming in hotter than expected, it is unlikely that the RBI will reduce rates even further in the near term.

The global stock rally seems to have run out of steam, despite robust global earnings and a relatively dovish bias to interest rates.  Wednesday’s Fed minutes showed that the U.S. central bank is likely to remain on hold, as the futures markets price in only a 50% chance of an interest rate hike during the balance of 2017.

The Reserve Bank of India Cut Rates in August

When the RBI last met early in August they cut their repo rate, which is their main lending rate, bu 25 basis points to 6%. The central bank at the time cited declining inflation risks, when it cut rates for the first time in 10-months to a fresh 7-year low.

Inflation Came in Hotter than Expected

It appears that the move might have been pre-mature. India reported on Monday that consumer inflation at the retail levels was stronger than expected rising 2.36% in July, reversing a decline seen in the prior month, according to the Central Statistics Office.  Food prices were one of the catalysts which drove the consumer price index up from 1.46 in June. Vegetable price inflation reversed a 16.5% decline in June and slowed to 3.6% in July. Wholesale inflation also came in stronger than expected rising 1.88% in July, compared to 0.9% in June, led by food prices.

Housing price inflation and fuel inflation accelerated higher in July which was driven by the government’s decision to install a commission that allowed a hike in fuel prices.  The government’s decision to rise cooking gas was the catalyst behind the additional fuel inflation expectations.

The swift move higher on CPI and retail inflation has put the RBI in “wait and see” mode. CPI is now forecast to come out higher in August which will likely keep the monetary policy committee on hold when they meet again in October.

Technicals

The Nifty 50, rebounded near support at the 50-day moving average following a nearly 4% decline from its highs in August.  The tumble in stock prices required some savvy insight which could be found by reading iFOREX risk management. The drop was in tandem with a global risk off trade that began as North Korea and the United States began a standoff on nuclear weapons. Prices remains in an uptrend with resistance seen near the all-time highs at 10,077.  Prices have remained near or above the 50-day moving average for nearly all of 2017.  Momentum is now neutral as the relative strength index (RSI) which is a momentum oscillator that measures accelerating and decelerating momentum, prints in the 51 level which is in the middle of the neutral range, and reflects consolidation. Negative momentum has decelerated as the MACD (moving average convergence divergence) index is printing in the red but the MACD histogram is moving higher with a positive trajectory which reflects decelerating negative momentum.

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