Is the Fed starting to ‘pivot’?

The XJO is expected to open higher this morning after another strong night of gains in the U.S. Despite a cautionary tone from the Fed, their market rallied back to their 200 day MA following the interest rate decision to leave the cash rate on hold. Our market is finally set to share in some of the gains with an expected open near key resistance at 6,900.

Markets have been poised for a relief rally, and this seems like the catalyst to drive it. If we can push through 6,900, then both 6,950 and 7,000 are our next key levels. This is also where the downtrend line roughly comes in.

Be mindful that our own monetary policy situation is different however, and we have our own interest rate decision from the RBA next Tuesday where there stands a decent chance we see a rate rise. This may lead to a cautious and short-lived rally, but if the U.S keeps hammering higher, their positivity is likely to be infectious regardless.

US Markets

US shares closed higher again overnight after the Federal Reserve meeting for September, where policymakers alluded to monetary policy being ‘balanced’ which was taken to suggest that interest rates might be at their peak. After the statements, US government bond yields dropped substantially, as did the US dollar. Analysts noted that despite the optimism, “The Fed did not rule out a rate increase in the coming months”. Other US economic data was mixed overnight, with worse than expected US manufacturing data, while there were also more job openings than expected. Tomorrow night we will see the full US unemployment report, which will also have an impact on whether more rate rises are likely. Overall, recent data and events seem to have shifted for US markets, with US shares now looking bullish.

Nine of the eleven sector groups of the SP500 closed higher overnight, with Technology, Communications, Discretionary, and other rate sensitive stocks closing higher. Consumer Staples and Energy stocks were the only ones to close lower on average.

Technically, the SP500 is now looking a bit bullish after bouncing off support at the 4,100-point level. Overall, the index remains in a downtrend, but after setting a new trough, we will now be looking for a peak. Its hard to say where the may occur, but the downtrend line at approximately 4,280 is a potential target.

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