The XJO is expected to edge lower once again this morning. The U.S opened higher, but sold off their intraday gains to finish practically flat, and their futures have moved into the red.
The Fed met early this morning, and markets are still digesting Powell’s statement. Despite the economic downturn, the Fed remains worried about inflation. The U.S reaction so far is fairly mild despite the warning of stagflation, and our market is responding in kind.
Yesterday we closed marginally lower, with indecisive trading through the day. We broke the uptrend line, but instead of expecting a selldown, we should continue to expect sideward movement for now. The U.S is also continuing in their tight consolidation, and we are likely to follow their break either way.
8,500 to 8,550 is roughly key support, and we should expect it to hold. The stochastic have had a chance to normalise and even dip below the median. Our market is in a good position for a rebound in the short-term but it is hard to suggest with any conviction it is coming.
The writing has been on the wall for a while now and our market has largely ignored it. If the idea of stagflation entrenches itself in the mind of the U.S market, it could be the trigger for a selldown. However, the prospect of further rate cuts locally could continue to keep us elevated – even if it doesn’t seem rational. We have shown that we are happy to outpace the U.S for much of this year. One day that will end. For now, we continue to trade the technicals, albeit cautiously.
US Markets
US shares closed flat overnight, with prices pulling back from an initially higher open. Prices were a bit back and forth with markets uncertain how to process the developments in the Iran-Israel conflict, which has somewhat died down, but at the same time it also looks increasingly likely that the US may take a greater role in the conflict. Additionally, as US markets closed we had the Federal Reserve meeting for June. The FED left rates unchanged, which was expected, so instead investors are trying to digest the accompanying words and statements from the event. The FED cut their outlook for the US economy, suggesting that Donald Trump’s tariffs bring risks of a slowing economy. At the same time, they warned the tariffs could also lead to higher inflation and so members were split in their forecasts of whether there would be further rate cuts this year. Overall this is probably one of the worst outcomes of the meeting for share prices, but for now, US futures are holding up relatively ok.
Four of the eleven sector groups of the SP500 closed higher overnight, with Technology the strongest performer, though gains were small. Energy stocks saw the most selling. Most sectors were fairly flat.
Technically, despite the recent selling the SP500 has held above the previous resistance levels at roughly 5,975, which acted as support. This level would have to break for further selling to look likely. The index has now arguably broke its uptrend line but assuming this support holds, we would expect an eventual bounce with an upside target at the all-time high at roughly 6,120.
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