The XJO is expected to open lower this morning following extend falls in the U.S overnight. Their futures are flat.

Our expected open is just below 7,000. 6,900 is roughly the lowest our market has traded at since late 2022. 7,000 and 6,950 are both key levels of support. With today’s move it is hard to know where we will land, however it would be reasonable to expect most of the damage to be done on open. We may indeed hold 7,000, especially if U.S markets move into the green through our session today. The SP500 is sitting on their own key support, so there is hope for a rebound or relief rally.

Today will mark the fifth day of decent selling. Coupled with the fact we are trading near the bottom of the range, we would hope for a rebound soon, though it is hard to know when. It seems likely we see it next week though unless pessimism persists. The U.S is throwing a tantrum following the recent Fed statement, which both the rhetoric and reaction was largely to be expected.

US Markets

Our XJO is expected to open around 90 points lower, to the 6,980 level. This follows a night of strong selling in US markets, with investors again deciding to hit sell in response to the Fed statements from Wednesday, where they said another rate rise was possible, and where they said rate cuts expectations should be pushed out further in time (likely to 2025). This meeting has triggered selling around the world, but perhaps our XJO has been one of the hardest hit markets, certainly more than America’s own markets. This betrays the nervousness of Australian investors at the moment, because our own interest rate outlook is little changed from the start of the week. Should we hold below the key level of 7,000 on the close today, we could see a sell-off all the way back to the lows of 2023, around the 6,920 level. Whether this happens or not will likely come down to whether US markets can stabilise tonight.

Prices remain elevated despite a difficult economic situation, inflation is coming under control in the US, but is still a major problem for the Australian economy. Do be cautious about the potential for recession in Australia, which could force our market lower at the end of this year.

Depending on the severity of the coming economic downturn, policy makers will eventually shift from tightening to stimulus. For markets to make a complete recovery to all time highs, we will need to get a narrative where Central Banks and governments will start to ease and stimulate again. This might not be until 2024 or 2025.

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