The XJO is expected to open higher this morning following a dramatic night in the U.S which saw their market reverse heavy intraday losses to finish in the green. Their futures have moved into the red, however.
The U.S clearly bounced from their key support which represents their recent lows. Their strong conviction is bolstering our market this morning, with an expected open near 7,900. With their negative futures however, don’t be surprised if all of our gains happen on open and we end up giving some up by close.
We are simply following the U.S for now. If we end up getting a better deal on tariffs, or if we are exempt entirely, we are still likely to follow the U.S but perhaps with a more bullish slant, i.e., pricing in their gains well, and being stoic against their falls. At this stage though, we should assume that the tariffs will proceed, and that negative sentiment will continue underpinning markets.
This may translate to new lows, but for now we should assume key support will hold and that markets will continue trading in a broad range. Indeed, the U.S showed us last night how strong the buying can be at those lows.
We have an RBA interest rate decision today at 2:30pm (AEST). The RBA provided some relief roughly six weeks ago when they cut rates by 25 basis points, but they were rather clear that we shouldn’t expect anymore for a while. Even though some would argue we should receive another today, the market puts the chance of a cut at about ten per cent. Therefore, it is most likely rates stay on hold.
More importantly, the market will be instead looking at the language Bullock uses in the statement for future guidance. Her hawkish tones from six weeks ago may shift, but unfortunately with the inflationary tariffs and a low AUD, it doesn’t seem likely.
US Markets
US shares initially traded firmly lower overnight, with prices reaching the lows (and perhaps slightly exceeding the lows) of mid-March before rebounding, potentially from a technical support level. Sentiment still remains negative, but not enough to break below the technical level this time around. Still, markets remain nervous about the upcoming tariff ‘liberation day’, Wednesday night Australian time, where Trump will enact retaliatory tariffs against tradnig partners. This is very negative news for share prices, but also for the economy. Should the Trump tariffs remain in place for any period of time, the US economy will head towards recession, yet tariffs also increase consumer prices, which means that interest rates may have to remain high regardless.
Ten of the eleven sector groups of the SP500 closed higher overnight, with Staples, Financials, Energy, and Materials the best performers. Most sectors saw moderate buying, with only Discretionary stocks closing lower on average.
Technically, the SP500 recently broke below the short-term uptrend line, showing a bearish breakout of the ascending triangle. The first downside target of the breakout was recent lows around 5,550, which was reached overnight and acted as support. With a bounce from this level, we see the index inside a descending triangle now, with the downtrend line currently sitting below 5,700 and the support at 5,550. We will need to wait for a break of either of these levels until we can form a technical directional view.
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