The XJO is expected to edge higher on open this morning. This follows an indecisive night of trading in the U.S on Friday, which saw their market try push through resistance but give up most of the intraday gains to finish only marginally in the green.
U.S jobs data largely came in as how markets wanted – worse than expected. This likely caused their market to pause, than simply profit take after a strong run last week. This should translate to our market doing something similar. We should test 7,300 this morning, but it would be hard to expect a break. It may even be hard to expect our opening gains to be held into the close today as U.S futures sit marginally in the red. Furthermore, we have an RBA decision tomorrow, and though it is expected that rates will remain on hold, our market likely won’t get too far ahead of itself or the U.S prior to the announcement.
There is a short-term uptrend line in play that we held on Friday. Our open should respect it. 7,300 is the next key level of support/resistance which we have flirted with over the past few sessions. 7,250 and the convergence of the key MAs is the next support, with 7,200 the next level beyond that. 7,350 to 7,400 are the next key levels of resistance. Which way we trade will largely be dependent on how the U.S trades, however our RBA tomorrow may help set the tone.
It is largely expected that rates will go on hold as Lowe exits office, but the market will be listening to future guidance. Largely, future guidance recently has been a firm stance of higher-for-longer rates, but data dependent. We have seen most key economic indicators and CPI readings come in worse than expected, which the market has interpreted as enough to keep the RBA wolves at bay (for now). The new governor Michelle Bullock will take over as head of the RBA this month. She is thought to be more hawkish, but she may change her tone now that she is helming the ship.
In the week ahead, tomorrow we have local retail sales numbers at 11:30am (AEST), and the RBA cash rate decision at 2:30pm (AEST). On Wednesday, we have local GDP data at 11:30 (AEST) and U.S PMI data Wednesday night.
US Markets
US shares closed mixed on Friday, with the DOW JONES and SP500 closing slightly higher, while the NASDAQ closed slightly lower. The rally came after fairly mixed jobs data from the US on Friday, with more jobs created than expected, though with unemployment rising due to more people participating in the economy. Overall the response to the jobs report was more positive than negative, likely due to wages growth coming in lower than expected – which lowers this risk of inflation. US markets did stall out a bit after a fairly strong week last week, so keep an eye on a potential reversal this week. US markets will be closed tonight for the Labor Day holiday.
Six of the eleven sector groups of the SP500 closed higher on Friday, with Energy stocks the strongest performers, followed by Materials, and Financials stocks. Staples, Discretionary, and Communications stocks saw the most selling.
Technically, the SP500 is stalling around the resistance at 4,525, which it tested again on Friday. The index may now return to support levels, with the 4,450 level a potential downside target. However, should it rise through the current resistance at 4,525, the next level to the upside would be 4,600.
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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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