The XJO is expected to open lower this morning following a continued selldown in the U.S overnight. U.S futures are flat.
Our market was closed both Friday and yesterday. The U.S closed marginally higher on Thursday, after shedding most of their intraday gains. They followed through with a strong move down last night. They have wiped out over half of the gains made since Trump announced a tariff pause on the ninth of April.
Our market has been extraordinarily strong in the face of U.S selling. Last Wednesday, the U.S broke lower. They renewed their selling after spending the previous week or so rallying on Trump’s tariff pause announcement. On Thursday, our market’s reaction to their renewed selldown was to actually rally and finish a decent measure in the green.
Our resilience in the face of U.S adversity is likely explained in a couple of ways. Firstly, the U.S is at the epicentre of the tariffs and the wanton chaos that is the Trump administration. They should indeed be more volatile than us. It is simply surprising to see our market stick to that logic rather than dramatically give up as is its usual modus operandi. Secondly, our market is likely waiting for the U.S to commit. There has been a lot of whipsaw movement. We can see back on the ninth of April how willing markets are to buy stocks at relative discounts to where they have been over the past twelve or so months. Many are likely bunkering down and waiting out the storm, and are unwilling to sell until they see the U.S selldown enough that it would indicate new lows.
We saw them extend their selldown last night. Yet our expected open is at roughly 7,700 – a fairly mild reaction. To put it into perspective: the U.S is trading ~16% down from their all-time high, and ~11% below their 200 day MA. With our expected open at roughly 7,700, our market comparatively will be trading ~11% down from our all-time high, and ~5% below our 200 day MA.
The move lower this morning will be a meaningful step towards continuing the downtrend. 7,700 may not be enough to confirm that a lower peak has formed, but it will be a strong beginning. Our move higher last Thursday almost looked like it was breaking the pennant to the upside. However, that is called into question this morning. Our bearish open could either mean the downtrend is continuing, or that the pennant has whiffed on sidewards movement. We would typically assume that downtrend has won. However, with our market’s uncharacteristic resilience it is hard to say for now. No doubt we are living in strange times. If the U.S stabilises, our market seems likely to hold ground.
There is not much key macro data this week. The U.S has PMI data tonight, but that’s about it. Our market is closed on Friday for ANZAC day.
US Markets
US shares closed flat on Thursday night, before falling strongly overnight. The Trump trade war continues to be devastating for the US economy and the US share market. Should the tariffs continue without a deal made with China, the US economy will likely head to recession. Enough damage may already be done that a recession is unavoidable. Trump has indicated that he’s ready to make a deal with China, and this would likely trigger a bounce in the market if it were to occur. However, both sides seem too stubborn and unwilling to budge from their current trade settings. Additionally, the Trump admin has seemingly rebuffed approaches from other nations (such as Vietnam and Japan), which has also worried investors. Expect more volatility in US markets in the absense of a deal.
All eleven sector groups of the SP500 fell strongly overnight, with every sector more than 1 percent lower. Discretionary, Technology, and Energy were the worst performers.
Technically, the SP500 showed another bearish candlestick overnight. Overall the index is falling back off before it has reached the downtrend line. It is possible that we see an acceleration on the downtrend from here. Overall the index is inside a descending triangle between the downtrend line at approximately 5,500 and the support level at approximately 5,000.
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