The XJO is expected to edge higher on open this morning following an indecisive night of trading in the U.S. Their market rebounded intraday from all-time high resistance, and gave up the session’s gains to finish flat. Their futures are not showing much action either.
Our market finished last week not with a bang, but a whimper. We had the flash in the pan fall last Tuesday, that sort of came out of the blue, and we subsequently have done very little. Perhaps we just couldn’t justify the levels, but still want to largely follow the U.S – which have been consolidating in a tight range for a couple of weeks now.
The fall on Tuesday broke the underlying uptrend line which had been in play since roughly the start of August. This does not however mean the trend has changed. Uptrends are characterised by higher peaks and troughs, which we could easily still be seeing. The break of the trend line often signifies a shallowing out of the trend rather a change in direction. We therefore continue to remain cautiously bullish to sidewards.
If the U.S does have a meaningful pullback, 8,150 to 8,100 is the next key level of support for our market, which is also where the 50 day roughly comes in. It wouldn’t be surprising to see these levels this week especially if there are some shocks around reports. Otherwise, there is practically a key level of resistance every 50 points from here to all-time high resistance at roughly 8,350.
There are plenty of reasons for our market to fall, ones that have remained for a while now. Our market is in a very different situation to the U.S which looks to be heading towards that coveted “soft landing” whilst also getting to enjoy the prospect of interest rate cuts. However, even the optics around their situation are beginning to sour, evident in their consolidation as investors weigh up the current valuations against the projected economic backdrop. They are amidst another reporting season, so updates are on their way.
Our situation is quite different. We have full employment, which was even reported to get fuller in an update a couple of weeks ago. Our inflation remains steadily and worryingly high, however we will get an update on that this Wednesday at 11:30am (AEDT) – fingers crossed for a decline. Retails sales are also miserable alongside wage growth and GDP. It is arguable that we are already in or heading towards a per capita recession. We should get an update on retail sales on Thursday at 12:30pm (AEDT). A combination of high inflation, full employment, and low GDP is likely worrying the RBA and should be worrying our nation’s leaders. These issues are also the reason why the RBA will not commit to a timeline for rate cuts, even threating rate rises if things don’t change. This is also troubling considering other developed nations including the U.S, Europe, Canada, and UK have started to move towards rate cuts – potentially leaving us behind. This is a longer-term issue though and there is plenty of time for things to change.
These issues have been present for months now. It is these worrying factors, juxtaposed by a U.S that seems to keep dog-legging higher, that has trapped our market in a sidewards to bullish pattern but caused it to be arguably the most expensive in our history. It could easily end in tears, but we should keep dancing whilst the music plays.
The hero of our market remains the banks, which unashamedly rallied back towards their all-time highs over the past few weeks. The materials continue to play the villains of our market, and are trading in short-term descending triangles. The reason, of course, is that iron ore is largely doing the same. They are tracking along the 200 day MA and likely need a catalyst to start moving again. That could come this week with Chinese manufacturing data at 12:30 (AEDT) this Thursday. If numbers are poor, perhaps there will be more reason for the Chinese to announce stimulus which in turn could stoke the fire under our miners that had been reduced to embers.
Aside from what has already been mentioned, in the week ahead we have U.S GDP numbers Wednesday night, which are expected to come in flat at 3% – a healthy number. On Friday we have local PPI data, and we will finish the week with U.S unemployment data on Friday night – which is also expected to come in flat at virtually full employment.
US Markets
US shares closed mostly lower on Friday, with the SP500 and DOW JONES finishing in the red, while the tech-heavy NASDAQ saw some buying and closed higher. US shares initially traded firmly higher, but fell throughout the second half of the session to close mostly in the red. US shares came off as bond yields continued to push higher, likely due to concerns that interest rates won’t be cut at a rapid pace from here, given that economic data and inflation data continue to remain quite strong. This week will once again be centred around earnings, with Google, Microsoft, Facebook, Apple, Amazon and many more reporting this week. Over the weekend, Israel enacted retaliatory strikes against Iran, the attacks were seen as measured and small, and early indications are that Iran won’t seek to further retaliate after these attacks. This is positive news for markets, and US futures have pushed higher this morning.
Four of the eleven sector groups of the SP500 closed higher on Friday, with Communications the strongest performer, followed by Technology and Discretionary stocks. Utilities and Financials stocks closed lower. Most other sectors saw moderate selling.
Technically, the SP500 is holding above key support at 5,770, which was previously the all-time high resistance. It has also held below the most recent all-time high at 5,870, which is now acting as the resistance target to the upside. Should 5,770 support break, we could see a move back towards 5,670.
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