Australian shares to pull back on open after moderate US selling

The XJO is expected to edge lower on open this morning. U.S futures sit flat and they experienced a small pull back overnight. Markets are consolidating sidewards after their strong run last week, and today looks like we will continue to tow that line until at least the GDP reading at 11:30am (AEST).

Yesterday we saw selling in the morning session, but managed to retake almost all of the intraday losses to finish fairly flat. We tested the bottom of the consolidation range which comes in at roughly 7,265, and almost kissed the 50 day MA before the intraday rebound. This followed a rather lacklustre RBA interest rate announcement that was pretty much the same as last time: rates on hold; we may need to continue to tighten; but we won’t if the economy continues to cool.

With our GDP reading today, it is expected the economy will cool to 1.7% from the last reading of 2.3%. Our market would ideally want to see it come in lower than expected (<1.7%) or by the very least as expected. However, if the economy is showing resilience and comes in stronger than expected (>1.7%) then our market has been known to throw tantrums…

US Markets

US shares closed mostly lower overnight, with each of the three major indices finishing in the red. There was a lack of major news or events for US markets to react to, so instead, the slowdown that was seen late last week continued. Movements overnight were small, but prices did finish around their lows for the session. Tonight and later this week we will see more US data, which could trigger further directional movement. There will also be a slew of Fed members speaking on Friday, which will influence the odds on rate rises moving forwards. For now though, shares are looking overbought in the US and could see some profit taking.

Only three of the eleven sector groups of the SP500 closed higher overnight, with Energy stocks the strongest performers. Materials, Industrials, and Utilities stocks saw the most selling.

Technically, the SP500 is falling from the resistance at 4,525, showing a moderately bearish signal overnight. 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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