The XJO is expected to open lower this morning following a pullback in the U.S overnight which saw their market rebound from their all-time high resistance. Their futures are flat.
Yesterday we shed the morning’s gains following a stronger than expected employment reading. For most this year, your unemployment rate has been at roughly 4.1% – full employment. A major concern for our RBA which wants to see inflation move closer to comfortable targets. The strength in our labour market has been a major contributor to the prospect of interest rate cuts being pushed further down the road. Yesterday, our unemployment rate came in at 3.9% and without a change in the participation rate. Somehow, we are now fuller employed. In fairness, the way we measure employment is very loose, but regardless, our market was not happy with the result.
There were still optimists left in our market who believed that there would be rate cuts early next year (personally I couldn’t see it happening). With the stronger than expected employment reading, those hopes should be well and truly dashed. I wouldn’t be surprised if we didn’t see a rate cut until the second half the year, but there is plenty of time for things to change.
The result was that our market broke through key support at 8,350 – a level we have tested several times recently but managed to hold. The next clear target is at 8,300, and our market is expected to dip its head below it this morning. This is also roughly where the 50 day MA comes in. The 50 day MA is often a point of comfort and a the first clear stop for any proper mean reversion. With our market trading near the 50 day MA, from that metric, is neither overbought nor oversold in the short-term, as it is trading at the same average price that the average participant bought/sold our index.
Finally, it is around these levels that a broader underlying uptrend line comes in. We should test it this morning. It is for these reasons we think the market should feel comfortable holding somewhere around 8,250 to 8,300 provided the U.S does not sell off.
US Markets
US shares closed lower overnight, with each of the three major indices finishing in the red. Selling was seen with across the board after a jump in jobless claims, but with a measure of producer prices (related to inflation) coming in stronger than expected. This is not at all what the market wants to see. Still, the market is expecting another Fed rate cut next week, but with inflation coming in strong for the past few readings, it is quite likely that 2025 holds fewer rate cuts than thought. The uptick in jobless claims is also worrying, because many predictive signals have been suggesting that a recession is coming for the US, and if jobs data weakens, it will look more and more likely.
Ten of the eleven sectors of the SP500 closed lower overnight, with only Staples finishing (slightly) higher. Every other sector closed lower, with Discretionary, Healthcare, and Communications the worst perfromers.
Techically, the SP500 is holding below the resistance at 6,100, and showed a bearish candlestick overnight. It is likely we could see the index move back towards 6,000, but overall the index is in an uptrend and we would expect higher peaks and troughs for now.
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