The XJO is expected to edge lower on open this morning following a pullback in the U.S on Friday. With the U.S not committing to a break of their recent highs, our market seems likely to continue hanging around the consolidation range we tried, but failed, to break out of last week.
7,150 to 7,200 remains key support. 7,275 to 7,300 remains key resistance. There is still a downtrend line in play that could continue to force our market lower, especially if U.S markets fail from here. We will need to see how their debt talks continue to unfold.
It has been a curious market over the past couple of weeks, with little movement either way. Our own RBA has flagged more interest rate rises to come, and our market will want to balance pricing that in, with our typical modus operandi of following the U.S. Furthermore, we remain in the current phase where bad economic data is good for markets (and vice-versa), but obviously bad for the economy. Adding in complications like the U.S debt ceiling, it is hard to forecast the next move for markets, though here in the office we feel the pressure remains to the downside.
In the week ahead, the largest piece of news will be the FOMC minutes on Thursday morning. U.S PMI data will be released Tuesday night and New Home Sales Wednesday morning. Price data and monetary policy updates remain king for market sensitive news. Finally, U.S GDP will be updated Thursday night, which is a key economic indicator that in conjunction with the FOMC minutes and PMI data may cause volatility in their market, and subsequently ours. Locally, we will finish the week with retail sales update on Saturday, which we might price in next week depending on how the numbers look.
US Markets
US shares closed mostly lower on Friday, with each of the three major indices finishing in the red. Sentiment soured somewhat with talks around the US government debt ceiling stalling. Additionally, many analysts and commentators are now forecasting that inflation will remain above the target range for the next few years. Plenty of Federal Reserve (FED) members will speak this week and then on Wednesday we will see the Fed meeting minutes from their May meeting; these minutes will further illustrate the official expectation for interest rates and inflation moving forward. Overall the market has remained high on the hope that interest rates and inflation will fall from here, but many are starting to question if that will actually be the case.
Only four of the eleven sector groups of the SP500 closed higher on Friday, with Energy and Healthcare stocks faring the best. Discretionary and Communications stocks saw the most selling.
The SP500 held below the resistance at 4,200 on Friday. This means it is staying inside the sideways consolidation range of 4,050 to 4,200 and we have to expect further sideways movement. Should it break above 4,200, we will be seeing an uptrend for the SP500, with a possible upside target of 4,300.
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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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