The XJO is expected to open higher once again, marking the fifth bullish open in a row, following renewed buying in the U.S overnight. U.S futures are flat.
Our meek open yesterday turned into a fairly strong bullish day by the close. For a moment it seemed our market was running out of gas, and that we would continue to flirt with the key 8,000 level. However, it seems our market has its eyes set on the 200 MA, which is only a stone’s throw away, and even closer now with our expected open near 8,100 this morning.
The steepness of this rally cannot last much longer. Our immediate-term stochastic can’t get much more overbought. We continue to grind along the top of the immediate-term Bollinger bands. It would seem reasonable to suggest that meeting the 200 day might be the selling point for this market. Perhaps the profit taking will be mild – it wouldn’t take much to normalise these overheated indicators. Or perhaps it will come with gusto. China has put its foot down, calling Trump’s bluff, and refusing to remove tariffs and step away from the negotiation table. We didn’t see the U.S react to that overnight, or to their weaker than expected consumer confidence numbers. Markets are shrugging off bad news, drifting higher in a sort of daydream. Like our market, the U.S is reaching for equilibrium in the form of their 50 day MA, which is also within arm’s reach.
8,100 to 8, 200 seems likely the range we find resistance. 8,150 is the key level, which is also where the 200 day MA comes in. If vigour returns, we may overshoot it, but it would be hard to suggest considering the current technical and fundamental environment.
We have local CPI today. From the same time last year at 2.4%, we are expected to come in at 2.3% – a marginal drop but keeping within the RBA’s targets. However, from last quarter, we are expected to increase from 0.2% to 0.8% – a concerning increase but again, within the RBA’s targets. Trimmed mean CPI is expected to increase from 0.5%, to 0.6%. All in all, inflation is expected to remain within target ranges, but it may concern our market that we are seeing an increase QoQ – which could cause the RBA to hesitate on future rate cuts. The market is adamant that the RBA will cut rates several times this year. If CPI comes in stronger than expected, it seems likely to remove some of that certainty and possibly some of the bullish sentiment.
US Markets
US shares managed to grind out another gain overnight, the sixth consecutive gain in a row for the SP500. Prices opened slightly lower, and managed to close a little higher. Investors remain in an optimistic frame of mind with Trump signalling that he backing down from his trade war (seemingly with nothing gained). Trump is practically begging China for a deal at this point, but many tariffs remain in place and so far China has been unwilling to make a deal. This will likely make investors nervous again soon, unless a deal is made. With current tariff settings, as we are likely to see a strong economic downturn from the US. Markets will likely have further upside if Trump can secure a deal with China, otherwise a resumption of selling seems likely.
Ten of the eleven sector groups of the SP500 closed higher overnight, with only Energy stocks closing lower on average (after a build-up in oil inventories). Financials and Materials saw the strongest gains, though no sector saw a standout rally.
Technically, the SP500 closed higher for the sixth straight session overnight, with the index now breaking the downtrend line that has formed since February. This should indicate a move back to the peak of late March around 5,775, which is also where the 200-day moving average sits.
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