The Nifty lost 101 points, or 0.61%, last week to settle at 18,203. Though the Nifty is holding above all the important long- and short-term averages, it has seen a running correction. The oscillators are also headed south. On the weekly charts, the benchmark has made a bearish engulfing pattern too. However, this is not too perturbing as on Friday it made a bullish hammer on the charts.
The Nifty’s loss of just 0.61% should be seen as commendable in the light of the Karnataka assembly election results.
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The announcement last Friday by RBI regarding the planned withdrawal of the `2,000 note will not have any meaningful adverse impact on the markets. Any impact, if at all, is likely to be temporary. I expect the Nifty to hold its ground. The first support is 18,060 and a very strong support exists at 17,900 in the form of the neckline of the inverted head and shoulder pattern formed by joining the March 6, 2022, and April 17, 2022 highs in the Nifty.
In the US, the Congress and the White House are racing against a June 1 deadline, by which time the Congress must raise its debt limit or the US may not be able to meet some of its debt payments. That in turn could likely trigger a first-ever US default.
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Republicans are pushing for sharp spending cuts in exchange for the increase in the government’s self-imposed borrowing limit, a move needed regularly to cover costs of spending and tax cuts previously approved by lawmakers.
This is not the first time the debt ceiling is set to be raised after it was first fixed in 1917. The debt ceiling was raised at least 90 times in the 20th century and has been raised 24 times in the 21st. Talks were continuing during the weekend.
Though inflation continues to be stubborn in the US, the Fed is likely to pause at the next FOMC meeting on June 13-14. This was the crux of the speech by Jerome Powell at a conference on Friday. With this, the probability of a hike at the June meeting has come down from 33% to 17%.
Front-month crude oil contracts of both Nymex and Brent posted their first weekly gains after a four-week hiatus, rising 2.1% and 1.9%, respectively. Crude oil tracked the broader market sentiment that supported risk assets on the rising belief that the US will avoid a default.
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The global markets are doing well, especially the Nikkei. In India, the Bank Nifty touched its all-time high last week. Keep a tight vigil on your stop losses.
The writer has over three decades of experience in the capital markets. He was former head of private clients’ group (PCG) and capital market strategy at HDFC Securities