The XJO is expected to rally on open this morning following a strong move higher in the U.S on Friday. Their futures are also in the green.
Tech rallied, Apple announced a buy-back, and employment data was slightly softer than expected – all things their market needed to run higher. This will flow into our market this morning, though considering we are not as well represented in tech, we will not push as hard.
We should open near 7,670 and seems reasonable to expect a test of 7,700 key resistance during our session. This is also roughly where the 50 day MA comes in. By that short-term metric, the market will neither be overbought nor oversold – the market will be trading at the same price on average it has the past 50 sessions. Buyers will not be able to purchase this market at a discount, and sellers won’t be able to sell it for a premium price. In essence, our market has returned to the status quo.
U.S employment data coming in softer than expected (at first glance) vindicates Powell’s reassurances during their last rate announcement. However, both Australia and the U.S remain at full employment which still supports the underlying narrative that rate cuts are likely to be pushed out to later this year, if they even happen at all.
Despite the recent strength, it seems most likely that our market tracks sideward in a broad range. 7,500 to 7,550 is the clear support and represents the lows of our market since late January. In the short-term, 7,700 to 7,800 represents the ceiling but beyond that we have 7,850 and the all-time highs near 7,900. We could get there in the short to medium term, but soft economic data would need to underpin the rallies, and one softer than expected employment reading isn’t enough to suggest that we are out of the woods. Indeed, it seems more likely that data remains sticky, if not stronger than expected which will help keep our markets range bound. If data is stronger than expected, if inflation is strong enough to push us back into a hiking cycle, then markets will tank – however this seems less likely and something to worry in the second half of the year.
This week we have an RBA interest rate decision. Of course, rates are expected to remain on hold, but we will be looking for future guidance on monetary policy from Bullock. Two decisions ago, she said rate rises aren’t off the table. Last decision, she said we will monitor data and see how we go. In essence, she has been cautiously and slowly moving into dovish territory. However, with the recent strong economic data, she will at best, keep the same tone of ‘wait and see’, or at worse move back to ‘rate rises are still on the table’. It seems likely that our market reacts to the news either way, but not enough to have us break away from the U.S. It seems that local news exacerbates or dampens the influence from the U.S, rather than causes us to ignore them.
Aside from the RBA, the U.S has various Fed members speaking throughout the week. In the past, dissenters and hawks have spooked markets, so we could see anything happen depending on weather the members tow the line or break ranks.
US Markets
US shares jumped on Friday following Apple’s earnings report and a weaker than expected unemployment report. Unemployment rose in the US, with fewer jobs created than expected, and with wages growing slower than expected. This weak jobs report was seen as deflationary for the US market, increasing the chance of a US rate cut this year. Additionally, Apple’s report came in better than expected, pushing the second largest US listed company to rise six percent for the session. Overall though, the likelihood of rate cuts is the most important thing for the market, and anything (such as the jobs report) that increases the chance of a cut will drive upwards share price movement. This week is pretty light on US data, so instead the focus will probably be on earnings.
Ten of the eleven sectors of the SP500 closed higher on Friday, with only Energy stocks finishing lower. Technology stocks saw the most buying, with prices rising after a better than expected result from Apple. Communications and Materials stocks also saw strong buying.
The SP500 pushed through the medium term downtrend line overnight, with the index now looking bullish towards the resistance around 5,150, which was previously support. Should that level break, we are likely to see further upwards movement, perhaps to the 5,200 level. Should the index fall from here, the recent low around 5,000 is likely the support level to the downside.
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Advisor at TradersCircle and Emerald Financial
Joining the team at TradersCircle in 2011, Karo has extensive experience in both investing education and derivatives trading.
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