The XJO is expected to open lower this morning at roughly 8,800 at time of writing. The U.S session Friday night was mixed, where they managed to retake intraday losses to finish marginally in the red. However, the big news over the weekend was Trump’s appointment of Kevin Warsh as the new head of the Fed (once Powell finishes up in May), and the subsequent tanking of silver and gold prices, and rallying of the greenback.
Our miners (XMJ.ASX), which have had a strong accelerated rally since roughly November helped lead our market’s falls on Friday. With the strong moves over the weekend, they seem likely to extend the cooling off today. They make up roughly twenty-five per cent of our market.
Our largest sector, the Financials (XFJ.ASX), dominated by the big banks, makes up about thirty per cent of our market. They have largely been tracking sideward, trading towards the point of a short-term pennant. We could see a rotation of the miners in the short-term into the banks to find stability leading into CBA’s report next week Wednesday. It is not uncommon for our two largest sectors, the Financials and the Materials, to work against each other.
Our selling Friday and this morning, also makes sense when considering that we have not priced in a rate rise, which many think is coming tomorrow at the next RBA meeting. The Cash Rate is expected to increase from 3.60% to 3.85%. This should be bearish for our market, yet we have largely rallied since November last year, during the time the likelihood of a rate increase has also developed.
8,800 is a key level of support. And represents the recent lows of our market of the past few weeks of trading. The uptrend line comes in at similar levels, however, if our market does not rebound and continues selling today, the uptrend line will have broken. This does not mean that the uptrend has finished, it may (and often does) mean that the trend is simply shallowing out. Uptrends are defined by consecutive higher peaks and troughs, and at this stage there is not enough evidence to suggest that won’t continue. Of course, there are plenty of good reasons for markets to correct, but they have been around for a while.
If 8,800 breaks, which seems somewhat likely, then 8,700 is the next key level of support, with interim support at roughly 8,750. Though we will likely need to see the U.S fall also do get there, and they relatively stable for now.
Aside from the RBA announcement tomorrow, things are pretty quiet this week from a Macro-economic reporting perspective. There is some U.S PMI data, but that’s about it until they report their employment figures Friday night – but we won’t react to any developments from that until Monday next week.
US Markets
US shares fell on Friday, with moderate selling across the three major indices. There was a big rebound in the US dollar, while other risk assets such as precious metals and cryptocurrencies saw extreme selling after Trump named his nominee for Fed Chair, former Fed governor Kevin Warsh. Warsh is seen as historically a hawkish Fed member (favouring rate rises), so the nomination is a little unexpected. Still, over the weekend Trump joked that he would sue Warsh if Warsh doesn’t lower rates. There will be another big batch of corporate earnings including from Google and Amazon, which will test the U.S. stock market after
Four of the eleven sector groups of the SP500 closed higher on Friday, with Staples the best performers, Energy stocks also fared well. Materials and Technology stocks saw the most selling.
Technically, the SP500 has stalled around the all-time high resistance at 7,000 and has now fallen back off to the 50-day moving average and potential short-term uptrend line. This leaves the index inside and ascending triangle pattern between that short-term uptrend line and below the all-time high resistance. We would need to break either the short-term uptrend or the all-time high resistance before another directional move will look likely.
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