The XJO is expected to fall on open this morning following a strong pullback in the U.S overnight. Their futures are flat.

The U.S had some strong secondary base jobs data overnight, but it seems likely that much of their selloff was also driven by a de-risk attitude as we head into the Fed interest rate decision tonight. Their falls will cause our market to wipe off the past couple of days’ gains, as we open near 7,580.

7,550 to 7,600 has been a key support for our market recently, and we should expect it to hold today unless U.S futures get worse. We also may extend the risk-off attitude and head back to the recent lows of 7,500, but anything beyond that seems very unrealistic.

The market remains trading in a medium-term downtrend, and so we should expect to continue making lower peaks and troughs. Though our market continues to trade technically, listening to key supports and resistances, trading near MAs, etc, we are ultimately driven by how the U.S trades, and how their market reacts to data.

U.S macroeconomic data has been stronger than expected or desired since the start of the year. We have seen this also in some of our reporting. This has led the Fed to warn that interest rates will be delayed for as long as they need until they see data weaken. We should expect the Fed to reenforce this rhetoric tonight, however the market will react based on the Fed’s tone when delivering the message. It seems more likely than not we tumble from here, but the Fed could be dovish enough for markets to hold or even rally.

US Markets

Us shares fell strongly across all three major indices overnight, following stronger than expected US wage growth data. The data pointed to further inflation for the US economy, which suggests that interest rates are likely to remain higher for longer, and perhaps even that there will be another US rate rise. US markets may also have fallen from downtrend lines that have formed since the peaks at the start of April. Regardless, resurgent inflation is triggering the current volatility, and despite a reasonable degree of selling, shares still look very expensive. We will get an update on interest rates and inflation tonight with the Federal Reserve meeting for May. The Fed is expected to become more hawkish in tone, which does present some risks for the market, given that the market doesn’t want higher rates. Still, Jerome Powell has ever tried to sooth markets and no doubt he will try again. On the earnings front, Amazon was trading higher in after-market trading following its results, while AMD fell strongly after its announcement.

All eleven sectors of the SP500 closed lower overnight, with Energy, Discretionary, and Technology the worst performers. Healthcare saw the least selling.

Overnight the SP500 bounced down from a medium-term downtrend line, potentially signalling further bearish movement. The recent low around 4,950 is now the downside target and the major level to watch. Should the index bounce from that level (or higher) it would indicate a return to the downtrend line (currently around 5,100). Should the index break below 4,950 the downtrend will be continuing and we could see a move back to 4,800 – 4,850.

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