A tale of two inflation battles

Our XJO is expected to open around 25 points higher this morning to roughly 7,200 index points. Our market is continuing higher after the recent extreme strength in US markets, though local investors remain fairly negative given our current economic predicament. Should US markets cease rallying, its likely that our attention will return to our inflation battle (which isn’t going to well), and the fact that there are likely several more local rate rises to come. To shift this mentality, we will likely need to see a shift in local economic data, but other than the RBA meeting minutes, there isn’t much data next week.

Strength is likely to continue to come from our materials stocks today, with metals prices pushing higher again overnight. Otherwise its hard to say which sectors of the market will add to the strength today, though perhaps the local technology stocks will add to the gains given continued strength in the US tech space.

Technically, our XJO remains in a giant pennant pattern. We are approaching the downtrend line of the pennant, which currently sits just above 7,200 index points. This pattern suggests we will find resistance around here and come back down to the uptrend line in the coming period. Until either the uptrend or downtrend breaks, we will have to expect to head into the point of the pennant.

US Markets

US shares closed strongly higher again overnight, with each of the three major indices finishing firmly in the green. This came after US economic data overnight came in mostly worse than expected, perhaps pointing to further deflationary pressures. Retail sales was better than expected, though growth was slow, while Jobless claims, industrial production, and other manufacturing data was worse than expected. In general, US investors and economists feel that the current interest rate tightening cycle is coming to a close, with perhaps one or even no more rate rises expected. There’s a lack of major US economic data tonight, though US shares will likely react to the European CPI readings tonight. US shares will be closed on Monday next week for the Juneteenth public holiday.

Every major sector of the SP500 closed higher overnight, with Healthcare, Industrials, Technology, and Communications stocks seeing the most buying. Real Estate stocks saw the least buying.

The SP500 is continuing on its upwards and broke through the resistance at 4,385 overnight. The index is continuing to push higher, but it’s hard to say where the upwards move will stall. While the momentum remains to the upside, the index does look overbought and a pullback will likely occur soon. To the downside, the previous resistance at 4,300 is now likely to act as support, but an eventual move back to the uptrend line (currently around 4,250) might be expected.

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