The XJO is expected to open lower this morning following a strong pullback in the U.S on Friday. U.S futures are mixed to flat.
On Wednesday last week, our market drove higher on softer than expected CPI which would hopefully pave a path for the RBA to start moving towards rate cuts soon. Since then however, that positive sentiment has lost out to a U.S that is unhappy with their own data as they conversely move towards a rate cut pause.
We settled on the 50 day MA on Friday, a point of comfort as we awaited permission from the U.S to continue our move higher. Unfortunately we did not get it, with the U.S selling back down to key support on the back of stronger than expected Jobs numbers. Our market will translate this to an open near 8,240. This also means we are likely to break through the key support at 8,250 which we rebounded from intraday on Friday.
If we hold below 8,250, which seems most likely at this stage, then 8,200 is the next clear target if selling persists. Though hopefully some residual bullish sentiment is left in our market, and we wait to see if the U.S breaks lower before committing too much to the downside.
Considering the U.S held their lows on Friday night, rather than bounce from key support intraday like they have been recently, don’t be surprised if do indeed see a break lower.
Interestingly, the Ausie dollar broke below historic support, trading at lows we haven’t seen in years. The selling is likely the market trying to price in an RBA rate cut sooner than expected – though it is still hard to believe the RBA will proactive and cut in Feb. At least the low AUD is good our miners.
The financials fell hard in the U.S. Coupled with how expensive our banks are at the moment, we should expect the lion share of today’s falls to come from them.
Finally, the rest of the week is likely to remain volatile, with plenty of key data being released. The biggest news is U.S CPI on Wednesday, which will no doubt have an effect on markets. Other major news is U.S PPI tomorrow night, local employment data on Thursday, U.S Retail Sales Thursday night, and Chinese GDP on Friday.
US Markets
The U.S fell on Friday, likely on the back of stronger than expected Jobs numbers. With the Fed shifting its stance last month to indicating a pause in monetary policy, the recent strong economic readings have bolstered the proceeding negative sentiment.
The SP500 pulled back to their key support at roughly 5,830. Recently they have been bouncing off this level intraday, or stalling at roughly 5,870, but on Friday night they held their lows, threatening to break lower. They also likely broke the broader underlying uptrend line, though the line was sketchy at best. Prior to the break of the uptrend line, it could be seen that the SP500 was trading in a pennant as the broader underlying uptrend was in play, alongside the short-term countertrend. With the move lower on Friday however, it may have shifted to being a descending triangle. We are clearly seeing lower peaks, but support has been holding so far, and thereby stopping lower troughs from forming. Typically, we would expect the downtrend line to win, and the support to break.
All sectors were firmly in the red, with only Energy marginally in the green. Real Estate, Financials, and Tech took the brunt of it, falling almost 2.5%. Utilities and Health Care fared relatively the best, falling just over 0.5%.
The next big pieces of news will be PPI Tomorrow night, CPI Wednesday night, and Retail Sales Friday night. All of these releases, in particular CPI, should continue to develop the narrative around the future of monetary policy for the U.S, and by extension, continue to drive their markets.
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