The XJO is expected to rally once again on open this morning at roughly 8,625 at time of writing. The U.S continued their rally overnight for the third day in a row on the back of some weaker than expected key macroeconomic data that all but entrenched the expected rate cut in December. Their futures are flat however, indicating they may be running out of steam after three strong days of gains.
Don’t be surprised to see a repeat of yesterday, where most of today’s gains happen on open this morning, especially if U.S futures do anything but rally. Our strength this morning may be chalked up to us having fallen harder than the U.S recently, and with their market rebounding strongly, us wanting to price that in well. Furthermore, both their financials and materials were up over one per cent overnight, and both of those sectors make up over half our index. However, it would be hard to expect strength to hold for our index as we do not have the same optimism of an impending rate cut underpinning our moves.
8,650 is roughly where the downtrend line comes in. Don’t be surprised to see us rebound off it intraday today, or tomorrow if we manage to hold strength. We also won’t likely want to spend too much time away from the 200 day MA, which should continue to act as a somewhat magnet whilst things remain uncertain.
Where things may change is with the CPI release today (11:30am AEST). For our market to shift sentiment, it likely needs believe a rate cut is coming sooner, which in turn means we need to see weaker than expected key macroeconomic data. The biggest key data point is indeed CPI. If it comes weaker than expected, our market will likely have a small sigh of relief. Going forward it will likely be more comfortable retaking ground lost to the exaggerated selling over the past couple of weeks – especially if the U.S continues higher. Of course, if CPI doesn’t impress then it will be either a non-event at best, or trigger a selldown at worst.
US Markets
US shares jumped again overnight with prices rising on the back of increasing expectations of a December rate cut from the FED. The probability of this rate cut was bolstered by data overnight, which had been delayed by the government shutdown. The reports showed lower than expected producer prices, weaker retail sales, and lower consumer confidence than expected. All of this data being weak does suggest the economy is slowing, which is good for the market (due to increasing likelihood of rate cuts), but should the economy continue to weaken, we couls start to see the market fret about recession. Google parent Alphabet soared in early trading, while those of Nvidia plunged after a report that Meta Platforms is looking at spending billions on Google AI chips. US markets might now look bullish as the rate cut approaches on the 9-10th of December, but following that cut, don’t be surprised to see investors a bit more reticent.
Eight of the eleven sector groups of the SP500 closed higher overnight, with Healthcare, Discretionary, Communications and Staples the best performers. Energy stocks were the only ones to see notable selling on average.
Technically, the SP500 has been rising since finding support at 6,550 and overnight it broke above the 50-day moving average and above the key resistance level around 6,750. With a break above these levels, we could now see the index will look like taking a run at the all-time high, although we do need to be aware of the potential for a lower peak to form here, given that the previous peak was below the all-time high. The stochastic is also turning to point higher from the oversold range, which could also indicate a bit of a turn about to come here. Should the index fall off from here and break below 6,550, we are likely to see a technical correction.
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