The XJO is expected to open lower this morning following a strong pullback in the U.S on Friday. Their futures also closed in the red.
Markets are throwing a tantrum because April second “Liberation Day” has approached, and Trump has not shown any signs he will be making concessions. All the while economic forecasts continue to decline, and inflation looks like it is starting to settle in again.
The short-term countertrend line in the U.S was clearly broken, and they look ready to head back to their recent lows which is now only roughly one per cent away. Our market will likely look the same today.
Our expected open is around 7,880 at time of writing. However, this would put us about 1.7% away from our lows, so don’t be surprised if things get worse as 10am approaches or throughout the session – especially if U.S futures continue to paint a grim picture.
By short-term indicators markets were looking overbought and due for some mean reversion, so the pullback will provide some healthy mean reversion. However, it is always hard to know what Trump will do. Things could easily turn around if Trump decides to amend tariff policy. He has always been sensitive to market movements, using the stock market as a gauge on how well he is doing. No doubt that he has seen the strong selling since his presidency begun, and no doubt it will be hurting his inflated ego. It will be interesting to see him try have his cake and eat it too.
Given the unpredictability of it all, we should assume that markets will remain in a broad range. Don’t be surprised if we see our lows again in the most recent market tantrum. We just created a ceiling at roughly 8,000, which now represents the top the range. Of course, these levels will break eventually, but we should expect them to hold for now.
Macro-economic data remains important as it is still a major factor in monetary policy going forward. How it is digested against Trumpenomics is hard to say, but we should continue to take note of key events as they can directly move markets.
We have local Retail Sales numbers tomorrow, which are expected to remain stagnant at a meagre 0.3%. More importantly however, we also have an interest rate decision from the RBA tomorrow at 2:30pm. During the last meeting, about 6 weeks ago, the RBA cut rates by 25 basis points. However, they immediately shifted their stance to hawkish, using language that suggested that was all we were going to get for a good while. Since then, things have arguably gotten worse, so there is some speculation that the RBA may cut again tomorrow. This still doesn’t seem likely, but it wouldn’t be surprising to see their language start moving towards move dovish tones which should help bolster our market against any further selling in the U.S.
Tomorrow night there is U.S manufacturing PMI data and JOLTS Job numbers; Nonfarm employment change on Wednesday night; Bullock will speak on Thursday morning; And the U.S will finish off the week with further PMI and Employment data on Friday night.
US Markets
Where to start? To be honest, it’s surprising US shares didn’t fall by even more on Friday. US economic growth forecasts continue to fall, inflation came in stronger than expected, Trump threatened to increase tariffs due to Canada and Europe supposedly ‘colluding’. All of this is negative for share prices. 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. It is not a great economic situation to be it. Investors will be hoping that the tariffs are part of a wider game of deal making and that they don’t remain in place for very long. Investors are hoping that there is some sort of plan in place. At the moment, those hopes unfortunately don’t seem valid.
Only one of the eleven sector groups of the SP500 closed higher on Friday, which was Utilities, which may have risen due to hopes benefitting from tariffs and Trump’s domestic policies. Every other sector closed lower, with Communications, Discretionary, and Technology stocks the worst performers.
Technically, the SP500 fell from the resistance level at 5,775, and broke below the short-term uptrend line, showing a bearish breakout of the ascending triangle. The downside target of the breakout is initially at the recent lows around 5,550, which may act as support, this level is not far off at all and could easily be reached, or even breached tonight.
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