The XJO is expected edge lower on open this morning. The U.S overnight continue higher. They have now recovered the lion’s share of the selling from Tuesday over the past two sessions, and mean reverted to normality. However, markets likely have shellshock and remain on eggshells in the immediate term.
Yesterday we finished firmly in the green, rallying on a strong U.S recovery the night before. Our previous session on Wednesday saw us stall at both a key level of support and the underlying uptrend line. Intraday on Wednesday, it seemed like we were happy to bounce from those key levels, provided of course the U.S recovered. And that’s exactly what we saw. The U.S recovered and our market yesterday expressed it is happy to continue the uptrend. The next clear target is local resistance at roughly 8,900 which represents the recent highs and most recent peak in the uptrend we have been trading in since roughly late November.
With Trump cancelling the tariffs and simmering down on the rhetoric of invading Greenland, markets should return to business as usual. However, now that cracks have formed, markets are likely to remain sensitive.
Next week is a big week for key macroeconomic data. We have local CPI numbers and a Fed interest rate decision. Locally, it is a bit confusing as to what our market wants to see. Employment figures yesterday came in stronger than expected, by a good measure, dashing any hopes for further rate cuts. However, strong employment is believed to be a key metric in a “healthy” economy. With more people paying into their supers that liquidity, in part, ends up in our indexes.
We will certainly want to see CPI data lower next week, to stave off any rumours that the RBA will have to return to a contractionary cycle soon. However, it seems our market is getting comfortable with the vigilant macroeconomic data, and in turn, the end of our expansionary monetary policy cycle.
US Markets
US shares continued higher overnight with momentum persisting from the prior session. US shares opened higher but weren’t able to finish around the highs of the session, and instead drifted off their intra-day peaks back to opening levels.
US markets have been somewhat volatile recently, with prices pulling back from all-time highs due to Trump’s tariff threats and other unsable behaviour. However, the main thing to keep in mind is that the US government money printing is continuing (and in fact accelerating) and that this money is consistently flowing to financial markets. We are in a period of US asset inflation and that will likely continue until the money printing stops, or possibly until interest rates rise.
Seven of the eleven sector groups of the SP500 closed higher overnight, with Communications the best performers, followed by Discretionary stocks. Real Estate stocks saw the most selling.
Technically, with the recent U.S markets have pulled back into a bit of no-mans land and aren’t giving strong directional signals either. We are seeing the SP500 hold around the 50-day moving average and that could indicate uncertainty and potentially sideways movement. To the upside, its hard to see the market moving beyond the all-time resistance around 6,990 in the short-term. To the downside, 6,750 looks unlikely to break unless some negative news comes out.