The XJO is expected to open flat this morning. This follows a tumultuous night of trading in the U.S on Friday which saw their market retake intraday losses to finish practically flat. Their futures have edged into the red.
The U.S has entered a period of consolidation, tracking sideward in a broad range with their uptrend line having broken. Our market comparatively continues to trade in a shallow ascending triangle which articulates the slow but steady grind higher.
Over the past few sessions, we have stalled at key resistance at roughly 8,450. 8,400 to 8,350 represent the closest key level of support and the uptrend line comes in at similar levels. Nothing seems to be shaking our market from its current trudge higher, be it good news or bad news. We should continue to expect the ascending channel to hold for now and for resistance to eventually break, albeit in a likely lacklustre fashion. It seems we are almost determined to reach all-time highs again which are now in arm’s length.
In the short-term, the prospect of rate cuts continues to be the underlying driver for both our market and the U.S. For now, markets seem to be building an immunity to the tariff situation and for good reason. So far, the TACO trade has played well, and markets are likely sick of the whiplash. One minute they are on, the next they are off. One minute the court has ruled them unlawful, the next minute they are back on whilst the ruling goes under appeal. It’s a circus.
However, we remain cautious. Storms are brewing on the horizon. Though we should expect the ascending channel to hold, it would be hard to expect markets to make fresh all-time highs. Even reaching them seems silly. Economies look like they are heading towards recession, and long end bond yields remain very shaky. Powell is worried about inflation inducing tariffs and may not commit to rate cuts whilst Trump continues down the path of isolationism.
Macro-economic data numbers therefore remain very important to markets, and there is plenty in the week ahead. The U.S has PMI data tonight and Wednesday night. Powell will also speak tonight. Tomorrow, we the RBA minutes from their meeting, which may help shed further light on the future of monetary policy. On Wednesday we have local GDP numbers. We are expected to contract from 0.6% to 0.4% QoQ. This should be good for our market as it increases the likelihood for further rate cuts. On Wednesday night the U.S has some employment numbers, but the bulk will come out Friday night which our market will react to on Monday.
With all this data, markets could remain indecisive, which supports the narrative of the ascending channel holding. Of course, if there are large shocks, especially in one direction, the data could help shake our market out of its holding pattern, but that seems less likely for now.
US Markets
US shares closed fairly flat on Friday, with prices finishing unchanged after initially trading firmly lower. May was the strongest monthly increase for US shares since November 2023 as prices bounced back from the strong selling of March and early April. However, prices do now look elevated, especially with some of the tariff story now starting to show up in the economic data. We have recently seen US imports start to decline and US jobless claims start to rise. US economic data is likely to weaken further from here. Additionally, the tariff story is also not yet over, with Trump announcing further tariffs on steel and aluminium over the weekend (up to 50%). Finally, the likelihood of further US rate cuts this year continues to decline, with the FED stating they expect prices to rise due to the tariff situation. While the momentum for US markets is definitely to the upside, when that momentum breaks, we could be in for another bout of substantial selling. Later this week we will see US unemployment for May and investors will look for any clue that the job market is beginning to slow.
Eight of the eleven sector groups of the SP500 closed higher on Friday, with Staples, and Utilities the best performers. Energy stocks saw the most selling. Most sectors were fairly flat.
Technically, the SP500 recently bounced off its overall uptrend and rallied to the first target, which is week’s peak at 5,970. However, the market has now pulled back from that level. Should we see a break beyond 5,970, the next level is not far away at 6,000. Should the index fall further from here, it would need to break its uptrend line for further selling to look likely.
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