It was a tame session in the US overnight apart from the energy sector, which sold off heavily with Crude. Crude fell to the lowest levels seen since the war broke out in Ukraine in February. The S&P500 is holding below the key 4,170 level for the moment. UK construction PMI numbers came in much lower overnight, as the BOE lifted rates by .50% to 1.75%. This is likely to be the theme in the coming months if CPI does not come down quickly.
Economic data is likely to fall in the coming quarter as economies feel the pain of higher rates. The question will be if central banks will continue to hike rates despite this. Some investors are speculating that central banks will stop lifting rates sooner rather than later, but if US jobs numbers remain strong and CPI next week does not fall, we expect the FED to lift again in September.
US CPI is due for release next Wednesday night, Core is expected to go up to 6.1% YOY and headline down slightly to 8.9%. With the market so overbought in the short term, CPI could see a market sell-off.
Strong reporting in the US has helped lift sentiment, our reporting session will kick off next week. The big one to be watching locally is CBA which has jumped strongly in the past month. It is common for the banks to rise into reporting and fall strongly within 2-3 weeks after. With such a strong rise recently we would expect banks to fall towards the end of the month around dividend time.
Australian Outlook
The XJO is expected to edge higher on open this morning following both a flat night in the U.S and their flat futures this morning.
Our market continues to follow the U.S, with both the XJO and SP500 simply tracking sidewards following the strong run from the lows. Both markets are holding their respective resistance, with our market holding 6,950 to 7,000. Both markets look overbought in the short term, but the consolidation could easily mean they are taking a breather here before moving higher. Both markets are also somewhat hovering around the 100 day MA and their stochastic continue to track in their overbought areas.
Market’s will likely be looking to economic data to help determine the future of monetary policy in developed western nations – particularly in the U.S. In the meantime though, the XJO is trading a short term ascending channel with a steep gradient that we would expect to shallow out soon.
US Markets
US shares closed slightly lower overnight, with the DOW and SP500 closing slightly lower, while the NASDAQ closed slightly in the green. There was a lack of serious movement in shares overnight, with prices instead holding fairly level. In economic data overnight, US jobless claims continued to increase, with both initial and continuing jobless claims worse than expected; this will likely inform investors about tonight’s US unemployment data, which is expected to show a slightly lift in the number of unemployed. US earnings data continued to be fairly positive overnight and more than three quarters of reporting companies this season have exceeded analysts’ earnings expectations.
Four of the eleven sector groups of the SP500 closed lower overnight, with energy stocks seeing notable selling after further falls in oil prices. Every other major sector closed slightly higher, though no sector saw strong moves higher.
Technically, the SP500 has trended higher in the short-term, with the market rising almost 15 percent from the lows of June. That move has now stalled at the resistance around 4,150 – 4,160, which is also where the longer-term downtrend line comes in. Should this resistance break, we could see a move towards the next key level around 4,300. Should the index fall from here, the next major support is around 4,000 index points.
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