The XJO is expected to edge lower on open this morning with little to no leads from the U.S due to their public holiday and flat futures.
Yesterday the RBA decided to hold rates. Essentially, they want to wait and see. They recognise that discretionary consumption is falling, but unemployment remains at 50-year lows. The RBA also recognises that raising rates increasing wealth disparity. It came across to me that the decision yesterday to hold rates was largely built on hope, as they kick the can down the road to what most of us agree ends in higher rates anyway. Ironically, they also recognised that indecision would help entrench inflation. One can see however that they don’t want to hurt the average consumer further if they can help it (especially when the bulk of inflation was built on corporate profitization). It is just our belief that they probably won’t have a choice regardless of that hope, and by stalling they could make the situation worse in the long run.
The market reacted well to the hold and rallied into the close. We stalled at roughly the 7,300 key resistance and the question now is whether we can push through. We have had another relatively strong run from the bottom of the channel, but whether we make it back to the top of the channel at roughly 7,375 will likely largely come down to whether the U.S can hold strength. They have stalled at resistance, so it wouldn’t be unreasonable to see some profit taking in the short term. Indeed, our own market may feel the same way, especially considering that tensions of inflation and rate raises still remain – albeit are alleviating for now.
If we do see a pullback, then roughly 7,150 seem the most the likely target. However, we may also flutter around these levels in the short term to hang around the convergence of the 50 and 100 day MAs which offer a bit of safety for an indecisive market.
US Markets
US shares were closed overnight for the Independence day public holiday. US futures were slightly lower, though movements were very small. Tonight we will see the release of the US FOMC meeting minutes for the June meeting, which will likely trigger some directional market movement depending on how dovish or hawkish the notes are.
The SP500 closed very slightly above the key resistance at 4,450 on Monday, this was during a shortened session with light volumes. This level would have to break convincingly for further gains to look likely. Overall the index remains on a strong uptrend so there is every chance this level does break. Should the index resume falling from here, the recently broken resistance of 4,300 could act as support against a downside move. This level is also roughly where the uptrend line sits, which could also act as support.
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Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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