The XJO is expected to jump higher on open this morning, with XJO futures pointing to a gain of roughly 60 points and an open near 7,850.
The rise in XJO futures comes after US markets rebounded on Friday, with their senate passing a bill to avoid a government funding shutdown. Still, US futures have pushed back into the red this morning as thoughts return to the reality of a trade war, declining consumer and investor confidence, and the potential for a recession.
Even though we might see a small rebound here, our market is now clearly trending lower. Its hard to see a potential rebound trading much above 8,000 before selling resumes. The reality is that despite the recent selling, Australian shares remain very expensive and with sentiment now negative, it will take a turn around in the US to trigger notable buying locally.
We shouldn’t expect too much today with U.S futures firmly in the red. Currently we are mostly following US market developments with our own market movement. Local news has definitely been less important. The major economic news for Australia this week will be unemployment on Thursday, which is expected to come in unchanged for February.
While a bounce today is expected, a fall tomorrow or later in the week shouldn’t be unexpected.
US Markets
US shares rebounded strongly on Friday, enjoying one of their best days of the year as senators voted to pass a US government funding bill to avoid a government shutdown. US economic data showed a big drop in consumer sentiment, with an increasing number of Americans worried about an economic downturn. And rightly so. The longer the Trump trade war goes on, the greater the likelihood of a recession. While the passing of the government funding bill might provide a short-term sugar hit, it is likely that the market will resume selling unless there is some resolution to the trade war. Additionally, more tariffs are expected on the second of April, which will probably add to the market’s worries in the coming weeks. Tonight we will see US retail sales for February, markets likely want a strong number here so as to not worry about an impending recession.
All eleven sector groups of the SP500 jumped higher on Friday, with the best performers the Technology, Energy, and Financials sectors.
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. Should the market continue to rebound from here, the previous support at 5,800 – 5,850 is likely to act as resistance. From a more medium term perspective, the index now looks like continuing lower to the next downside level, which would be previous support at 5,420.
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