This week in a nutshell (3-7th Jan)

Technical talks

NIFTY opened the week on Monday at  17,387 and closed on Friday at 17,813. The index made a weekly gain of 2.5%. On the upside, 17,945 could act as resistance while the 50DMA of 17,477 could act as a support. RSI (14) of 61 indicates the index is in an overbought zone.

Among the indices, BANK (+6.4%), PRIVATE BANK (+5.9%), and PSU BANK (+5.7%) led the weekly gainers while PHARMA (-2.6%), and IT (-1.5%) were the only losers.

Weekly highlights

• The S&P 500 had one of the worst starts to the year since 2016 amid pressure from tech stocks as Treasury yields continued to rally on rate hike expectations despite mixed monthly jobs data. The S&P 500 made a weekly loss of 1.9% while the NASDAQ lost 4.5%.
• Auto companies reported monthly volume data for December-21. The CV segment continued its uptrend aided by improvement in fleet utilization levels and improvement in fleet operators’ profitability. The demand recovery might come under pressure due to rising cases of the Omicron variant of the virus. Other segments such as Passenger Vehicles (PV), 2-Wheelers (2W), and tractors witnessed muted volumes, due to supply issues, a high base of Dec-20, and heavy rainfall in certain geographies.
• The yield on the 10-year Government of India bond rose to a 2-year high of 6.52% on Tuesday. This was the biggest one-day rise in bond yields in the last 4 months as India’s fiscal deficit is increasing and high inflation persists. The bond yield has been on an upward trend for many months due to a rise in bank credit-to-deposit ratio, higher inflation, and a rise in bond yields in the US. Higher yields are also likely to translate into higher interest rates on corporate borrowing and retail loans that could impact the economic recovery.
• The global benchmark, Brent crude jumped to USD 80 a barrel, as OPEC+ decided to raise its output target by 400,000 barrels per day from next month. The coalition believes the Omicron variant would have only a mild impact on demand. In a volatile week, Brent closed at USD 81.8 per barrel while the West Texas Intermediate settled at USD 78.9 a barrel on Friday.
• The US Labor Department released data that indicates over 4.5mn people left their jobs voluntarily in November-21. This number was 4.2mn in October-21 and was the most in two decades. The data indicates a persistent churn in the US labor market.
• The minutes from the US Fed’s Dec. 14-15 policy meeting offered insight into the central bank’s shift towards a tighter monetary policy to curb inflation. A very tight job market and unabated inflation showed Fed officials uniformly concerned about the pace of price increases along with global supply bottlenecks in 2022. The global markets took this stance as hawkish and led to a massive sell-off.
• With the new Omicron variant of coronavirus spreading in the country, ICRA Ltd expects that India’s GDP growth for 4QFY22 would be 40 basis points (bps) below its earlier projection of 5-5.5%.
• Foreign institutional investors (FII) turned buyers this week and bought shares worth Rs 10,828mn. Domestic Institutional Investors (DII) continued to be buyers and bought shares worth Rs 32,933mn.

Things to watch out for next week

• The bond market is likely to set the course for the week ahead as rising interest rates gave stocks a choppy start to the new year.
• The US markets will be influenced by key inflation. The next week marks the start of fourth-quarter earnings with banks such as JPMorgan Chase, Citigroup, and Wells Fargo reporting earnings.
• In India, as people revert to Work from Home due to rising omicron cases, and expectations of lockdown restrictions will be on investors’ minds. The third-quarter earnings season starts next week with IT biggies such as TCS, Infosys and Wipro set to announce earnings on January 12^th.

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