Why Nifty Might Open Gap Down On Monday

Major indices around the globe traded in red on Friday the 3rd of March. Japan’s Nikkei was down 2.50%, while the Hang Seng and Shanghai composite fell by 1.50%.

The SGX Nifty was down almost 180 points at 10261 even as markets remained closed in India due to Holiday.

SGX Nifty

Fed Rate Hike Imminant

The timing of the Global selloff coincides with the overtly hawkish stance of the US Federal Reserve, which has hinted at the possibility of more than three rate hikes in 2018.

The Feds stance has been strongly backed by the Bank of Japan which too has hinted at rolling back its QE Programme.

Although the Japanese Yen has strengthened in the aftermath of the Roll back call, it is unlikely to fall below the 100 mark.

USD YEN

Significant Drop In US 10 Year Treasury Yield

The proof of the pudding lies in the US 10 Year Treasury Yield. The 10 year Yield curve has dived significantly low to levels of 2.793 which indicates that funds are flowing out of the equity markets into the safe haven US Treasuries.

Well this isn’t good news for Emerging Markets like India. A steep rise in Fed Funds Rate will invariably attract higher interest service cost to Dollar Denominated loans. This leads a domino effect siphoning out funds from the subcontinent.

US 10year bond

The spill over effect will lead to Indian Banks raising their lending rates.  Petrol and Diesel prices are likely to rise in the coming days as India is an importer of crude oil.

Nifty in all likelihood could be in the hunt for its next support of level around 10078.

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