The XJO is expected to open flat this morning following a small rebound in the U.S overnight. Their futures have edged into the green.
Yesterday we managed to reach key resistance at roughly at 7,700 and stalled. With the U.S continuing its sideward march overnight, our market likely feels reluctant to push through and make fresh highs. However, there was a very shallow countertrend line in play that we managed to stick our head above.
Our rally was likely spurred on by both U.S futures recovering intraday, and our weaker than expected retail sales numbers. Poor economic data helps give credence to the idea of rate cuts this year, however we are still seeing rigid inflation. It could be argued that company profitization continues to keep inflation elevated compared to consumer spending. With rental increases, falling housing prices, and consumer spending down, it seems clear the average person is feeling the weight of interest rates. Our RBA will also be reluctant to start cutting rates without the U.S doing so as well, and their data has been stronger than expected this year, which has likely pushed the chances of rate cut further out.
Right now, there is a strong argument for the market to move pretty much any direction. The bullish argument would be underpinned by a strong U.S which our market will want to follow (albeit perhaps reluctantly). Furthermore, our miners who have recently lamented could see a decent rebound soon, and if the financials can just hold ground, then our market should have the ability to push through and make fresh highs. On the other hand, the U.S is looking overbought. If they decide to pullback, coupled with selling in an overbought financial sector, our market seems happy to price in falls. Finally, if the U.S continues to track sideward, we could see a general malaise and continued low volatile environment. Even if we do see some volatility return, if there is a rotation from the overbought banks, into the oversold miners, that would likely translate to our market continuing to hang around these levels, albeit with more whipsaw movements.
Ultimately, much of the market seems to be on standby and we will simply have to wait for some direction before we can have a better idea.
US Markets
US shares closed moderately higher overnight, with each of the three major indices closing in the green. This came after the PCE price index (a measure of inflation) came in as expected, which means that there is “no new bad news on inflation dynamics” after January CPI growth came in higher than expected, pushing out rate cut hopes. Bond yields were lower overnight after the PCE reading, though they are still trading in a mostly sideways range. The SP500 closed at its highest ever level but it didn’t exceed the intra-day high from last week. Tonight we will see a large number of Fed members speak and they will likely comment on the PCE data, which could trigger further movement in US markets.
Seven of the eleven sector groups of the SP500 closed higher overnight, with Communications and Technology stocks the strongest performers. Healthcare stocks saw the most selling.
The SP500 returned to the milestone intra-day high of 5,100, which it first reached last Friday. The index will need to break above 5,100 for further gains to look likely. Overall the momentum remains to the upside and the index remains on an uptrend.
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Advisor at TradersCircle and Emerald Financial
Joining the team at TradersCircle in 2011, Karo has extensive experience in both investing education and derivatives trading.
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