The XJO is expected to open flat this morning. The U.S also finished flat on Friday, but following an intraday rebound from their lows. U.S futures are firmly in the green, and coupled with their recovery on Friday, our market may feel comfortable pushing higher today despite our muted open.
Markets are thankful for Powell’s comments on inflation inducing tariffs, suggesting they are transitory – the market’s favourite word when it comes to inflation. Schumer, leader of the Senate Democrats, avoided the government shutdown last week, which markets are also thankful for. However, as much as markets can have short memories, it would be hard to suggest that the bears lurking won’t come out of the woods again. It is important to remember that both our market and the U.S are likely still trading in downtrends. Though the downtrend lines have broken, it is more likely that the downtrend has shallowed out rather than simply finished. The past few sessions have seen both our market and the U.S start to run out of gas. U.S futures are firmly in the green, so we may see some renewed buying tonight, but it would be hard to suggest markets are simply going to start trending up again from here.
Trump has been sort of quiet for the past week. Perhaps he looked at markets and though it wise to take a breath. If he continues down the tariff warpath, which seems the most likely scenario, we should expect markets to at least retest their recent lows. For our market, that looks like roughly 7,750, with some interim support at roughly 7,850 to 7,800.
Regardless, markets are likely to remain sensitive and tentative. Sidewards seems like the most logical path for our market, consolidating at the bottom of the range as it digests everything.
It is a fairly quiet week ahead for macro-economic news both locally and overseas. The U.S has GDP data on Thursday night and that’s about it.
US Markets
US shares closed slightly higher on Friday, with a small tech-driven gain. Outside of technology companies, most of the market closed lower. US shares initially traded lower but they managed to stage a recovery late in the session to finish in the green. The main talking point in markets remains Trump’s tariffs, which may trigger a recession, and which the market very much hates. Further commentary around last week’s Fed meeting seems to suggest that Fed Chair Powell is worried that the tariffs may increase inflation and that rate cuts might come anyway to try stop the economy slowing. Trump over the weekend trumped up his next round of tariffs, coming on the second of April, which could cause consternation in the market. Any reprieve on tariffs will likely trigger some buying, but implementation or further talk from Trump around tariffs will likely trigger selling. To reiterate, tariffs are largely failed economic policy and unless they can be used as a short-term negotiating tactic, they will cause large damage to the economy and the stock market.
Only three of the eleven sectors of the SP500 closed higher on Friday, with Communications the strongest performers, while Discretionary, and Technology stocks also rose. Real Estate stocks saw the most selling, followed by Materials stocks.
Technically, the SP500 has broken below and has now fallen to the level of a technical correction (10% fall from the peak), which comes in around 5,540. It is now testing the short-term downtrend line and resistance level at 5,700. If the index can break above 5,700, we should see a move to the key 5,850 resistance level. Should the index fall from here, we would expect a move to the recent low around 5,500.
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