The XJO is expected to open lower following strong selling in the U.S overnight. Their futures are also in the red.
It feels like the past few sessions our market has given a false sense of security. Not only did we rally into the tariff announcement, yesterday we managed to retake roughly half of our intraday losses to finish back above key support at 7,850. U.S futures were strongly negative, with the DOW tracking down roughly 800-1000 points during our session. But it’s almost like we didn’t believe them or had an uncharacteristic amount of hope it wouldn’t pan out so poorly.
Well, it did. They sold down even further than what their futures were suggesting and tanked through their equivalent of 7,750. In response, our market’s expected open is at 7,750 but it would be hard to expect that to hold today. It seems likely we commit to the selling.
So much is up in the air. This is a historic move, that is largely unprecedented in the modern era with modern economics. Economists and pundits are still trying to digest the implications both on a macro and micro level. Australia fared well compared to the rest of the world, likely because we are one of the few countries that run a trade deficit with the U.S. Perhaps that means foreign capital will come into our market, seeing it as favourable compared to the U.S or other markets that got hit harder with tariffs? China, of course, copped a fair whack – being Australia’s largest trading partner, any negative implications may be extended to us? Our miners weren’t happy yesterday. The banks fared well however, with CBA finishing flat. Will we see them carry our market once again and move to unjustifiable valuations once again? Finally, how will other countries retaliate? China, Japan, and South Korea are forming an alliance. Europe is uniting. Our own government is showing a brave face, but in reality, we are likely to roll over and show our bellies like we always do. It is all very hard to know, and we should expect confusion and volatility to remain for a while yet.
We should expect key support at 7,750 to break, with the next key target being 7,600 to 7,650. The SP500 fell to these sorts of equivalent levels overnight. However, once again, perhaps we will fair better than they do considering they are at the epicentre of the tariff implications.
US Markets
US shares fell very strongly overnight. The SP500 fell around five percent, the NASDAQ six percent, and the DOW JONES four percent. These are unbelievably strong falls. They come after the Trump reciprocal tariffs, its seems that “Liberation Day” is the day that value was liberated from the market. Not only are much of the tariffs nonsensical, but they will damage the US economy and push prices higher. It is likely that the US economy will head towards recession should these tariffs remain in place for any length of time. On top of this, tariffs will lift prices in the short term, which might make it harder for the Federal Reserve to cut interest rates in the face of recession. This seems like complete own goal for now, and any potential benefit will take a very long time to reap, and is somewhat unlikely to come to fruition.
Ten of the eleven sector groups of the SP500 closed lower overnight, with greater than five percent falls in the Financials, Industrials, Discretionary, Technology, and Energy sectors. Staples were the only shares to close higher on average.
Technically, the SP500 broke below the support at 5,550. This means that it has broken out of the descending triangle pattern that had formed since mid-March. This suggests further selling, with 5,250 now a potential eventual downside target.
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