The XJO is expected to edge lower on open this morning despite a continued move higher in the U.S overnight.
Yesterday we opened higher and tested the top of the consolidation range and 8,880 key resistance, rebounded from it, then sold down to finish in the red. Most of the selling came in after the RBA announcement at 2:30pm (AEST). Though the RBA kept the cash rate on hold (as expected), their future guidance was rather hawkish. They pointed to a strong economy and labour market, which, aside from being a tad of touch with reality, means the RBA will be reluctant to cut rates further. Of course, this is not what the market wanted to hear.
Our response has been mild, but in fairness, a “strong” economy is still good for markets. Furthermore, the U.S is expected to see cuts on their side, and their market looks read to once again make fresh all-time highs. If they remain strong, our market will begrudgingly at least hold ground.
Our lacklustre open despite their move higher overnight is therefore not that surprising. Not only did we rebound off the top of the channel, the RBA announcement yesterday was less than favourable. Furthermore, the U.S is trading at all-time high resistance and their futures point to them holding for now.
We expect the channel to hold, and for our market to continue straddling the 50 day MA for now.
US Markets
US shares closed higher overnight, despite a looming government shutdown tonight. Additionally, new tariffs on heavy vehicles and pharmaceuticals will come into effect tonight. The US government funding limit has once again been reached and its looking unlikely that a new agreement will be signed before the government is forced to shut down tonight. This uncertainty has so far not been enough to disrupt the current upwards momentum, which is pushing US markets back towards their all-time highs of last week. There will be some major data this week, with US unemployment to be released on Friday. The members of the Fed favouring rate cuts have been pointing to the weakness in the jobs market as the reason that further cuts need to happen, so Friday’s jobs report could either promote or demote another Fed cut. The jobs data may need to balance on a tightrope for investors, revealing a weakening labor market that supports further rate cuts without adding to fears about a recession.
Seven of the eleven sector groups of the SP500 closed higher overnight, with Healthcare the best performer, followed by Tech and Industrials. Energy stocks saw the most selling.
Technically, the SP500 bounced off a potential uptrend line on Friday, and it continued higher on Monday and overnight, though the movements have been fairly small. The index has now risen to the recent peak and potential resistance of 6,700, though with the index recording higher peaks and troughs (on an uptrend), it is possible for the next high to be beyond this level. Regardless, we would need to see 6,700 break before gains beyond that level would look likely. The index remains on a short-term and longer-term uptrend and the stochastic is also pointing higher, confirming the bullish momentum.
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