Markets continue to look negative, with potentially more rate rises to come

The XJO is expected to open lower this morning following a pullback in the U.S overnight. They managed to break lower and hold their lows, and their futures are marginally in the red. Our muted open is likely due to large portion of their selling coming from tech, which is not overly represented in our market compared to theirs. However, if futures remain negative, expect the selling to persist through out the day.

We have found some support at roughly 6,825 over the past few days, which we are set to break on open. 6,800 remains a historic support which we are likely to test today.

Ultimately, it is hard to know when markets will see another relief rally. Negativity surrounding another rate rise before the year is out is still driving markets lower. Indeed yesterday we had a higher than expect CPI reading.

US Markets

US shares fell strongly overnight, with each of the three major indices closing in the red. However, it was strong selling in technology stocks that dragged the indices lower, after a poorly received report from Google sent companies in the space lower. Tonight we will also see the release of US GDP data for the third quarter, which is expected to show the US economy continuing to grow strongly. This is not what investors want to see, with bullish investors wanting an economic slowdown which could point to a peak in interest rates or even rate cuts in the near future. Currently it looks like there is still a chance of US rate rises in future, or at the very least, that US rates will stay high for a while, not something markets want. The US is also in an earnings reporting period, which though has seen selling, is going better than expected, with 80 percent of reporting businesses delivering better than expected results.

Two of the eleven sectors of the SP500 closed higher overnight, with Utilities and Staples finishing slightly in the green. Strong selling was seen in Communications, Technology, Real Estate, and Discretionary shares.

Technically, the SP500 broke below the support at 4,200 overnight, which is at the very least a lower-trough for the index, suggesting a continued downwards move. The index Is clearly setting lower peaks and troughs and the trend is firmly to the downside. The next potential support level could be the 4,150 level. Should the index rebound from here, the first target would be 4,200 – 4,250, and then 4,330 if that breaks.

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