The XJO is expected to open lower this morning. The U.S closed only marginally lower on Friday night. Their futures were firmly in the red early this morning, likely on the back of Trump and Iran, however they seem to be whipsawing at time of writing.
On Friday, our market managed to retake intraday losses to also finish only marginally in the red, holding onto the consolidation range by our fingertips. This morning, we are expected to open near the lows of Friday, at roughly 8,475. Whether we sell off further, or reverse and see another repeat of Friday, seems likely hinged on how U.S futures trade today.
Regardless, cracks are forming, and our market is struggling to remain positive. Further interest rate cuts has likely been the main driver for our market for the past while. Indeed, expansionary monetary policy has likely been the main driver for global markets since the lows back in October 2023. However, with everything going on, and our market having made just fresh all-time highs, and the U.S within arms of theirs, the argument for a selldown may be reaching a breaking point.
Headwinds seem to be building. The global economy is slowing down. Powell reiterated his concern for inflation (with emphasis on U.S trade isolationism under Trump), and has signalled that US rate cuts may not come as swiftly as desired. Risk and typical “non-risk” assets are seeing inflation. Valuations are stretched, and some companies, like CBA for example, seem way overvalued. The U.S is dealing with rising tensions internationally (Trump bombed Iran over the weekend), and domestically (the largest protest ever seen in U.S history the other day). And yet markets are trading near all-time highs…
8,500 seems to be the sort of battle ground for the moment technically. In the short-term, if that level breaks, then 8,450 is the next clear target, and 8,400 beyond that. However, if the pressure our market has been building is released suddenly, and selling occurs with gusto, then the clear target is where the key moving averages come in at around 8,200 to 8,300.
The technicals don’t point to much. The ascending channel we have traded in since roughly the start of May has now clearly broken. We have reluctantly sold off since with no commitment. We are trying to maintain a consolidation range, only holding on by the skin of our teeth. We should have a better idea this week if our market wants to rebound and continue tracking sideward or not. What does seem off the table however is fresh highs. It seems more likely that we see 8,350 than 8,650 in the medium term.
There is plenty of the week ahead for macro-economic data. Arguably the biggest news for us is our weighted mean CPI on Wednesday. It is not expected to change, however the market will likely relish a lower-than-expected reading (but not too low). Tonight, the U.S has PMI data. Tomorrow night, they have Consumer Confidence numbers and Powell will speak. Powell will also speak Wednesday night. The U.S will have GDP numbers Thursday night which are expected to come in negative again, (for us, that would be considered a recession). To finish the week, the U.S has PCE data Friday night.
US Markets
On Sunday morning, the US dropped bunker busting bombs on Iran’s nuclear facilites. This is a major escalation in the conflict and will leave investors uncertain about how things will progress from here. With such an uncertainty, we could see a selldown as investors exit the market and wait for things to settle. Additionally, we will see oil prices spike, which will raise prices and slow global trade. Finally, investors will worry that the strait of hormuz will be closed by Iran, which could further slow the global economy (about 20% of global trade goes through the straits). Before the US strikes over the weekend, US shares initially traded higher on Friday, before pulling back to close slightly lower on average. There wasn’t any major news for the US Friday session, though various small reports continue to show a slowing US economy.
Five of the eleven sector groups of the SP500 closed higher on Friday, with Energy and Staples the best performers. Communications and Materials stocks saw the most selling.
Technically, the SP500 has been seriously testing the support at the previous resistance levels at roughly 5,975 – 5,970. These levels will likely break tonight with the US attack on Iran. With a break of this level, further selling will look likely, with the next major target perhaps around 5,850 – 5,870.
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