Our XJO is expected to record another moderately positive open this morning, with a gain of around 20 points expected on open, to roughly 7,180 index points. Our market has been reluctantly dragged higher for the past couple of sessions, with overseas markets remaining strong, helping to drown out some of the local negativity. For our market to really break out of its doldrums however, we will likely need to see a shift in Australia’s economic data. Currently our data remains inflationary, while also pointing to a weakening economy. Today we will see the release of some important data, with the unemployment report being released at 11:30 AM AEST. Investors may want to see a lift in unemployment, as it could be a deflationary signal. Regardless, this single read is unlikely to be enough to break out of the narrowing pennant pattern our XJO finds itself in.

Materials stocks are again likely to buoy our market today, with base metals prices rising overnight, and with our major miners trading higher overseas. For our market to really move higher however, we will need to see other sectors join in the upwards movement, particularly the banking space, which can’t seem to shift itself higher from the current support levels. Moving into next week, there isn’t much local data so overseas and sector movements will be quite important.

Technically, our XJO remains in a giant pennant pattern. We have bounced a bit off the uptrend line and key support levels and we are slowly grinding up to the downtrend line of the pennant, which currently sits around 7,200 index points. Until either the uptrend or downtrend breaks, we will have to expect to head into the point of the pennant.

US Markets

US shares closed mixed overnight, with the US Federal Reserve deciding not to lift interest rates this month. This comes after yesterday’s US CPI reading, which showed that US inflation is starting to come under control. In the Fed’s accompanying statement they stated that most members believed more rate rises are to come, though that moves higher from here may come at a more moderate pace. Many economists expect the next Fed rate rise in July. Tonight will see US jobless claims, retail sales, and industrial production, which will help inform the likelihood of further rate rises. The reality is, if economic data weakens from here, we may already be at peak US interest rates. Stocks like the thought that rates are peaking, but it will depend on how severe the coming economic downturn is when trying to consider if US shares will keep rising.

Four of the eleven sector groups of the SP500 closed higher overnight, with Technology stocks the strongest performers, followed by Consumer Staples. Healthcare and Energy stocks saw the most selling overnight, with Energy falling after another big build-up in US oil inventories.

The SP500 is continuing on its upwards move and it reached the next potential resistance at 4,385 overnight before pulling back; this level will have to break for further buying to look likely. While the momentum remains to the upside, the index does look overbought and a pullback will likely occur soon. To the downside, the previous resistance at 4,300 is now likely to act as support, but an eventual move back to the uptrend line (currently around 4,250) might be expected.

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