The XJO is expected to open practically flat this morning despite a small rise in the U.S overnight. Their futures are also flat.
Yesterday we extended our opening gains, rallying through the session, and finishing firmly in the green. We practically reached the top of the recent consolidation range at roughly 8,880, so it is no surprise to see a soft open this morning.
We have tested 8,880 at least four times now. This morning may be the fifth. If the U.S maintains strength, we should expect to break it soon. However, our market of late hasn’t needed much of an excuse to selldown. It seems more likely that we rebound from resistance once again and continue holding the consolidation range – especially if there is a hint of weakness from the U.S.
For now, we continue to expect the range to hold, and perhaps more importantly, for our market to continue straddling the 50 day MA.
Today we have the RBA interest rate decision at 2:30pm (AEST) where they will likely keep things unchanged. As usual, however, the market will be focused on the future guidance from Bullock. RBA culture seems to be to keep your cards close to your chest, and to be somewhat hawkish by default? Often it feels like they want to promise very little, and promote the virtue of patience. Of course, Bullock could signal further cuts, or she could do the opposite. And our market will react accordingly.
US Markets
US shares closed moderately higher overnight, with a modest gain from each of the three major US indices. US trading was a little subdued ahead of a potential government shutdown on Wednesday should a funding limit increase not be agreed. Additionally, tariffs on heavy trucks, patented drugs and other item are scheduled to go into effect on Wednesday. Still, this uncertainty has not been enough to disrupt the current upwards momentum, which is pushing US markets back towards their all-time highs of last week. There will be some major data this week, with US unemployment to be released on Friday. The members of the Fed favouring rate cuts have been pointing to the weakness in the jobs market as the reason that further cuts need to happen, so Friday’s jobs report could either promote or demote another Fed cut. The jobs data may need to balance on a tightrope for investors, revealing a weakening labor market that supports further rate cuts without adding to fears about a recession.
Nine of the eleven sector groups of the SP500 closed higher overnight, with the strongest (but still modest) gains coming from Discretionary, Technology, and Financials stocks. Energy stocks saw the most selling.
Technically, the SP500 bounced off a potential uptrend line on Friday, and it continued higher overnight, though the movement was fairly small. The technicals are pointing to at least a rise to the recent peak of 6,700, though with the index recording higher peaks and troughs (on an uptrend), it is possible for the next high to be beyond this level. Regardless, we would need to see 6,700 break before gains beyond that level would look likely. The index remains on a short-term and longer-term uptrend and has just set a new higher trough. Additionally, the stochastic is currently turning to point higher, though it may need another positive session before it looks bullish.
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