The XJO is expected to edge higher on open this morning following both a bullish night of trading in the U.S and their mildly positive futures this morning.
Yesterday we sort of just gave up. It is hard to suggest what triggered the falls, but weakness in Asian markets and poor Chinese economic data likely contributed to the selling.
However, our market will sheepishly retake some of the losses and move back towards 7,300 as the U.S last night instead showed a clear bounce from their key level and reaffirmed their willingness to hold.
Yesterday we broke below 7,280 but with our expected meek retracement it seems likely this was simply a false break (for now). It is hard to suggest that our market will continue its descent without the U.S breaking below their own key support, however, yesterday clearly shows that our market is more than happy to sell down with even a whiff of bearish sentiment.
Broadly speaking, and despite any positivity in the short-term, underlying sentiment is rather mixed, and likely more bearish in the long-term. Optimism behind monetary policy and lower inflation is slowly being replaced by the reality we are heading towards a recession, with hopes of a “soft landing” being the only thing markets are holding onto.
US shares closed higher overnight, with each of the three major US indices finishing in the green to some degree. The tech and growth based NASDAQ was the strongest major index, while the value-based DOW JONES was flat. US analysts continue to debate the likelihood of further rate rises and whether or not a recession will be triggered. Overall though it was a pretty quiet night with US markets holding or bouncing off key support levels. Tonight will be much busier however, with US retail sales data being released. Retail sales will be seen as an important economic signal as to the likelihood of recession or further rate rises.
Six of the eleven sector groups of the SP500 closed higher overnight, with Technology and Communications stocks faring the best. Utilities stocks were the weakest performers.
Technically the S&P500 has fallen back to the uptrend line and potential supports at roughly 4,450. These are some key levels so there is every chance we see a bounce from here. Do not pre-empt the bullish move however, and wait for a nice clear entry bar off these lines, otherwise, if the index breaks to the downside, we could see substantial further selling.
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