The XJO is expected to open lower this morning after US jobs data came in much worse than expected on Friday, triggering a sell-off in US shares. In addition to the weak numbers for July, May and June’s jobs numbers were revised substantially lower, to show rising unemployment for three months straight. Following these bad numbers, Trump has fired the chief of the statistics bureau.
Our futures were substantially lower late on Friday, but with US markets seeing a little late buying, we have come back to the 8,640 level on the futures. 8,640 was our previous all-time high resistance, and it may now act as support. Should we break below that level, the next major support to the downside would be 8,550. Should we bounce from this level, that would leave us within the sideways consolidation range between 8,640 and 8,750.
Our market is substantially overpriced up here, and we would expect to see a sell-off at some point. However, we will likely need to see substantial selling in US markets for this to be the case. Despite the selling on Friday, US markets remain near to their all-time highs. Global shares are being pumped up by extreme US government money printing and that will remain in place unless interest rates rise or the bond market breaks. Trump is only increasing this money printing.
The other risk for Australian shares is the upcoming company earnings reporting season, which starts with some smaller names this week. The major reports won’t come until next week however. With prices relative to earnings to highest they have ever been, this season could trigger some profit taking from investors.
This will be a fairly quiet week for Australian economic data, so instead our market it likely to focus mostly on the US market, and news from the US.
US Markets
US shares closed firmly lower on Friday, with strong selling across the three major indices. US shares fell strongly after some terrible US jobs data. In addition to the weak numbers for July, May and June’s jobs numbers were revised substantially lower, to show rising unemployment for three months straight. Following these bad numbers, Trump has fired the chief of the statistics bureau. This data shows that the US economy isn’t really doing well, and is only being propped up by printed government money. This printed money is also keeping inflation high, which means its much harder to cut interest rates to support the economy. This data is quite negative for shares, and with share prices high at the moment, we could see them slow somewhat from here. This week won’t have too much economic data, so the focus will likely be on company earnings, with the current company earnings season fairing pretty well.
Three of the eleven sector groups of the SP500 closed higher on Friday, with Healthcare the best performer. Most sectors saw notable selling, with Discretionary, Technology, and Energy seeing the most selling.
Technically, the SP500 has shown bearish signals across the past two sessions, with a bearish engulifing bar on Thursday and a strong bearish bar on Friday. The index fell straight to a potential support at 6,220 on Friday, which held. Should that level break, we should see a move to the next support at 6,140ish. Should the index rise from here, there is resistance at 6,300. The index remains on an uptrend, with higher peaks and troughs (though the uptrend line has broken). A break below 6,220 would see a lower trough however, and would call the uptrend into question.
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