Our XJO is expected to open around 7,425 index points today after US markets jumped on further signs that inflation is cooling. Our own economic data on Friday pointed to a large drop in retail sales, which is also a deflationary sign. Overall, the past few weeks have shown signs for Australian markets that interest rates may be nearing a peak, and this is great news for our stock market.

Tomorrow we will see the RBA rate decision for August and most economists had assumed that we would see a rise at this meeting. However, after the retail sales read on Friday, and the lower than expected CPI reading the week before, there is now a reasonable chance the RBA holds tomorrow. Should they hold, our market is likely to see strength, while a lift in rates could trigger selling.

The past few days have seen some weakness in iron ore prices, as well as poor reporting from major iron ore miners, given this is the case, any strength in our market is likely to come from banking and financials stocks, as well as some of the smaller sectors of the market.

We are also about to see Australian company earnings reporting kick off, with some small reports this week. However, the major reporting companies will begin reporting from next week. When considering a trade or investment at this time, make sure you first check a company’s reporting calendar.

Technically, our market is set to rise, perhaps to the resistance around 7,470, which would have to break before further gains look likely. Should 7,470 break, we are a chance of rising to the key level of 7,570 that was reached in February. Should US markets fall from here, there is a fair chance we come back to 7,300.

US Markets

US shares closed higher again on Friday, with each of the three major indices finishing in the green. US markets were boosted by the PCE price index, a measure of consumer prices, came in lower than expected, further adding weight to the view that inflation is coming under control. Growth based sectors of the market saw the most strength after this as investors lowered bets of further interest rate rises. It is a pretty light week for US data until Friday’s jobs report, so its entirely possible that US shares continue to fluctuate around their highs for the next few days. The other notable event ongoing for US shares is the company earnings season, which has so far exceeded a pretty low bar of expectations, good but not great; not enough to force prices higher, but good enough to keep prices level.

Nine of the elven sector groups of the SP500 closed higher on Friday, with Communications and Technology stocks the strongest performers, while Real Estate and Utilities stocks were the only ones to close (slightly) lower on average.

Technically the SP500 is holding below a potential resistance level at 4,600, this level would have to break for further gains to look likely. The index remains on an overall uptrend but after some extremely positive recent movement, don’t be surprised to see some profit taking and a bit of a pullback. Should the index fall from here, recent resistance at 4,450 may now act as support.

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