The XJO is expected to open flat this morning. This follows another indecisive night of trading in the U.S on Friday which saw them give up most of their intraday gains to finish marginally higher. Furthermore, their futures sit flat this morning.
It’s a lazy Monday open. We finished last week managing to hold support at 7,150, retaking losses from an intraday break to finish only marginally lower. This was preceded by heavy selling which saw us give up most of the prior week’s stella gains, indicating that though our market is volatile, it continues to remain range bound. Roughly 7,100 and 7,300 mark the ceiling and floor of the current broader range.
In the more immediate term however, 7,200 and 7,100 are the key levels straddling our market, with 7,150 an interim safety point. Unless we see some decisive moves from the U.S, we would assume our market will hold somewhere around here.
The 200, 100, and 50 day key moving averages continue to converge near 7,250, which further highlights how sidewards our market has traded in both the long, medium, and short-term. If the U.S shows strength, this convergence is the first broader target for our market.
Markets fundamentally remain focused on monetary policy and inflation. We are still in a rotation where bad economic data points are positive for markets, as they reinforce the “peak-rates” narrative. Despite economies in decline, the market cares most that central banks cease to raise rates. This will likely remain the case for the rest of the year.
In the week ahead, we have Westpac consumer confidence and NAB business confidence numbers on Tuesday morning. The big news however is on Wednesday night, with a U.S CPI update, which is about as important as a news release gets. Of course, markets will want to see this number come in lower than expected, or by the very least, as expected. On Thursday we have local employment data. Again, our market will want to see unemployment increase, or by the very least remain steady. On Thursday night, the U.S will update retail sales numbers.
Markets may remain indecisive until Wednesday night, not committing either way until the U.S gets an update on their CPI.
US Markets
US shares closed flat to higher on Friday, with prices initially trading strongly higher before pulling back to close relatively flat. Last week was a pretty quiet one for US data but that will change this week, with the release of several key items, including US CPI on Wednesday night and Retail Sales on Thursday night. The key question for US investors remains whether there will be more interest rate rises and these data points will have a strong influence over whether another rate rise will come. US CPI is expected to tick up a little in August, after a strong rebound in oil prices – this could be seen as an inflationary signal, so do be careful of some volatility around this release.
Eight of the eleven sector groups of the SP500 closed higher on Friday, with Energy the strongest performer, followed by Utilities stocks. Real Estate and Industrials stocks saw the most selling.
Technically, the SP500 is holding above the 4,450 support level, which it tested on Thursday’s and Friday’s sessions. The index hasn’t really shown a convincing bounce off this level yet, but if it does, we would expect a move back towards the resistance at 4,525. Should the index break below 4,450, we would expect selling back towards the support at 4,350.
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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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