The XJO is expected to edge higher on open this morning following a move higher in the U.S on Friday. Their futures are also marginally in the green.
We should open near 8,810 as we once again bounce from key support at 8,750. This level represents the bottom of our recent trade range. We have been grinding along this level the past few sessions, unwilling to either rally, or break lower.
It seems our market is trading in a descending triangle. We have created lower peaks from our highs, but we are also holding key support. This means our troughs have remained steady and we can’t characterise our market as being in a downtrend. Though it is clear uncertainty remains, and that the bears hold sentiment.
It is also likely that we are trying to stay near the 50 day MA. Whilst our market remains near the 50 day MA, it can be considered neither overbought nor oversold by that short-term metric. This is because anyone buying or selling this market would be paying the same price as the average person did over the past three months. It is practically at equilibrium – a point of comfort as we wait to see how the U.S trades, and how our market’s view on the future of monetary policy develops.
Of course, there have been plenty of good reasons for our market to selldown – we were severely overdue for the pullback. And though the selling was swift, it was very short-lived. It is hard to suggest whether we will return to a state of delirious buying, or now that our market has seen the writing on the wall, sober up further to reality. Regardless, it remains likely that the U.S will lead, and that monetary policy remains the largest factor for our market.
As such, key macroeconomic data also remains ever important. Last week we had weighted mean CPI come in stronger than expected – a concerning trend that we are seeing both locally and in the U.S. Furthermore, GDP in the U.S came in far stronger than expected compared to the first quarter. Central banks are going to find it hard to justify further cuts if economic activity looks like it is heating up too quickly and more importantly, if inflation continues to trend higher.
This week, the big news is the RBA interest rate decision on Tuesday at 2:30pm (AEST). It is expected that the cash rate will remain the same, however the market will be looking for future guidance on monetary policy – hoping to see dovish tones that indicate imminent cuts. It seems unlikely we will get it though. The RBA has been keeping its cards close to its chest, and it feels like they are more hawkish as a default.
Otherwise, there is job data in the U.S throughout the week, with it culminating in unemployment figures on Friday night. They also have consumer confidence numbers tomorrow night, but that’s about it. China has manufacturing PMI data tomorrow too, and the U.S has their PMI data on Wednesday night. All in all, markets could see some volatility this week on the back of both the RBA and as the U.S goes through employment figures.
US Markets
US shares jumped on Friday, with prices recovering after three consective drops in the prior sessions. US shares rose with their PCE inflation reading, which showed that though inflation is remaining elevated, it is not spiralling out of control. The market sees this as leaving the door open for further Federal Reserve rate cuts. With these gains it looks like the upwards momentum is about to continue, though we could see further volatility despite the upwards momentum due to the upcoming US earnings reporting, as well as with prices extremely elevated. 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.
Ten of the eleven sector groups of the SP500 closed higher on Friday, with Utilities, Discretionary, and Materials the best performers. Only Staples stocks closed lower on average.
Technically, the SP500 bounced off a potential uptrend line on Friday, it showed a bullish candlestick and overall it looks like the bullish trend will continue at least in the short term. The technicals are pointing to at least a rise to the recent peak of 6,700, though with the index recording higher peaks and troughs (on an uptrend), we might expect 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 has just set a new higher trough. Should the US markets see gains tonight we will also see a turnaround in the stochastic, which would also confirm a likely rise.
Want to continue reading?
This is only an excerpt from todays TradersCircle Members Morning Market Update and doesn’t include the key data and charts our traders are keeping an eye on every day. Become a member today for this plus full length mid-day and end of day updates, trade recommendations, trade group webcasts, and much more!