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RBI to opt for the status quo for Interest rates, US markets broke a 5-day winning streak - HDFC Securities

U.S. equities fell at the open with tech shares dragging on the S&P 500 and Nasdaq, as concerns about inflation and the Federal Reserve reining in stimulus came to the fore. Markets got some relief near closing time on reports that President Joe Biden is willing to compromise over a proposed corporate tax hike.

Gains in cyclical stocks seen benefiting from economic recovery failed to offset early losses in technology stocks, despite upbeat economic data on employment and service sector activity.

U.S. Treasury yields jumped, lifting the dollar and hurting tech shares, after better-than-expected employment data overnight raised expectations for a strong reading for nonfarm payrolls on Friday, while a measure of service sector activity climbed to a record high.

Private-sector employment jumped by 978,000 in May, according to the ADP National Economic Report, well above forecasts from economists.

Asian stocks followed Wall Street lower on Friday as signs of a strengthening U.S. recovery boosted bets for higher inflation and an earlier tapering of Federal Reserve stimulus.

Today, India's rate-setting panel - MPC headed by RBI Governor would opt for another status quo for rates and keep the policy stance ‘accommodative’. The RBI is likely to continue with its open market operations, GSAP (Gsec purchases) and liquidity infusion measures to support credit-off take and anchor bond yields. Regulatory credit measures for stressed sectors and the quantum of G-SAP would be watched by market participants.

The MPC policy meeting comes at a time when the second wave of COVID-19 wave has peaked out which would be a relief to policymakers.

A gauge of India’s services sector contracted for the first time in eight months amid a deadlier second wave of the Covid-19 pandemic. The India Services Business Activity Index, compiled by IHS Markit, stood at 46.4 in May compared with 54 in April. The Composite PMI Output Index, too, dropped to 48.1 from 55.4 in April.

Nifty once again closed at a fresh record high on June 03 after opening with a gap-up. Sectoral rotation is back in focus. The advance-decline ratio continues to be very positive. 15598 - 15771 could be the range for the Nifty in the near term. Realty, Capital Goods, and Oil and Gas indices are leading the charge.

Daily Technical View on Nifty

Observation: After witnessing high volatility on Wednesday, Nifty showed yet another sustainable move on Thursday and closed the day higher by 114 points.

After opening on an upside gap of 79 points, Nifty made an attempt to move up in the early part and it later shifted into a range move for the better part of the session. The intraday buying has emerged towards the end and the Nifty closed near the highs. The opening upside gap remains partially filled.

A small positive candle was formed on the daily chart with lower shadow. Nifty registered another new all time high of 15705 and closed near the highs. Technically, this pattern signal uptrend continuation, after a small intraday dip of previous session.

The positive chart pattern of higher tops and bottoms again came in to scene as per daily chart. Wednesday's low of 15460 could be considered as a new higher bottom of the sequence. Now, the Nifty is moving up to form a new higher top of the sequence, which is yet to be confirmed.

Minor negative divergence has started to form on the daily Nifty/RSI but this pattern needs to be confirmed with down tick in the underlying Nifty in subsequent session. The overall market breadth continues to be positive and broad market indices like small cap and mid caps were seen outperforming the benchmark Nifty by small margin.

Conclusion: The short term trend of Nifty continues to be positive and one may expect further upside in the coming session.

Though, Nifty placed at all time highs, there is no indication of any reversal pattern unfolding at the swing highs. The next upside levels to be watched around 15800-15900 levels in the next few sessions. Immediate support is placed at 15575.

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