The XJO is expected to edge lower on open this morning following a similar move from the U.S last night. Their futures have moved into the green, which should help our market hold the strong gains from yesterday.
CPI came in much lower than expected yesterday, and there was a collective sigh of relief from both homeowners and market participants. However, we are of course not out of the woods yet, and it is very likely we continue to see further rate rises in the second half of the year. Yesterday’s CPI reading was largely lower on the back of falling oil prices, which is unlikely to go unnoticed by Lowe and his overworked cash rate lever. We still sit a good measure behind many other major western countries and we will want to see some heat come out of key economic indicators like unemployment and GDP.
Yesterday’s rally confirmed the channel with the support at roughly 7,100 holding once more. We got within a hair of the convergence of the 50 and 100 MAs which come in at roughly 7,225 and pulled back intraday to finish at roughly 7,200. This also puts us back above the underlying uptrend, however it is hard to have as much confidence in it as prior to the false break we just witnessed.
With a recent spat of volatility and our market still range bound, we may see things cool down provided the U.S doesn’t have their own kick up in volatility. At this stage, we continue to expect the market to remain range bound.
US Markets
US shares closed flat to lower overnight, with the teach-heavy NASDAQ finishing slightly higher, while the DOW JONES an SP500 closed slightly lower. Markets were nervous after comments from Fed Chair Jerome Powell that recently strong data suggests that the Federal Reserve (FED) will need to keep raising interest rates. He seemed to be setting the stage for a Fed rate rise in July. Much of the recent optimism in US markets can be attributed to the belief that with CPI growth coming back down, peak interest rates would soon arrive, so a disruption to this narrative is a risk to the current optimism in US shares. Still, the data is suggesting that a recession may be avoided in the US, which is obviously helping sentiment.
Only four of the eleven sectors of the SP500 closed higher overnight, with Energy the strongest performer, while Communications shares also saw notable buying. Utilities stocks led the selling, with materials and Staples stocks the next biggest losers.
The SP500 remains in a longer-term uptrend with resistance at 4,450 which would have to break for further gains to look likely. Should the index resume falling from here, the recently broken resistance of 4,300 could act as support against a downside move.
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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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