The XJO is expected to edge lower on open this morning. The U.S had a tumultuous session overnight following the negative GDP reading. They managed to crawl back their intraday losses to finish marginally in the green. Their futures have also edged into the green.
Yesterday, we continued to outpace the U.S, closing firmly in the green for the fifth day in a row. We practically reached the 200 day MA – the clear target our market has been striving for since breaking 8,000. In the face of adversity, our market has managed to continue trudging higher. It seemed adamant to return to equilibrium in both the short, medium, and long term. Practically speaking, our market cannot be considered overbought or oversold by a short, medium, or long term perspective according to the key moving averages – an extraordinary feat considering the current state of the world. However, in the immediate term, the stochastic are about as overbought as they have ever been, and we continue to grind along the top of the Bollinger bands. Furthermore, the steepness of the uptrend line cannot be sustained. Ultimately, we are due for some healthy profit taking and mean reversion, and now that we have hit the key moving averages, we may feel inclined to. Otherwise, we could track sidewards and consolidate gains.
The U.S reaction was curious but not too unexpected. Their GDP numbers came in much worse than expected. If they have another negative quarter, they will officially be in recession. GDP in part is calculated by removing imports, so it may be this reading was worse as importers scrambled to increase their stock before the tariffs hit. Regardless, it could also mean that further interest rate cuts are coming their way – though how that would work with inflationary tariffs is hard to say…
If strength returns to the U.S on the idea of further rate cuts, our market could easily hold. Some of the capital secured into our safe havens like CBA may return to the U.S, which could mean consolidation from here.
US Markets
US shares managed to close higher overnight despite initially trading firmly lower after a US GDP reading showed their economy contracted in the first quarter. On top of this, inflation rose by more than expected, and the US jobs market showed signs of slowing. All of this points to a reasonable likelihood of US recession, as early as the middle of the year. Whilst its true that growth in the first quarter was surpressed by imports, which could have been front-runners trying to get in ahead of the tariffs, there are no signs that the economy is about to spark back up. The overnight move therefore looks very strange. A strong fall around open and a push back up to finish slightly higher. It was the seventh session in a row of gains for the SP500 and it might be simply that the bullish momentum is yet to stall. After US markets closed, US futures jumped strongly after earnings reports from Microsoft and Facebook, with both stocks trading very strongly higher in aftermarket trading.
Seven of the eleven sector groups of the SP500 closed higher overnight, with Healthcare and Industrials the best performers. Energy stocks saw very strong selling, while Utilities also saw notable selling.
Technically, the SP500 closed higher for the seventh straight session overnight. The index has now broken the downtrend line that has formed since February. This should indicate a move back to the peak of late March around 5,775, which is also where the 200-day moving average sits.
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