The XJO is expected to open higher again this morning following another rally in the U.S overnight. US markets are rallying on the hope of a debt ceiling deal, and they have closed right on the key 4,200 level on the SP500. Our market is translating this to an open just above 7,250, which is a magnetic level that we keep returning to.

Yesterday’s unemployment data from Australia was just what the market wants to see. Unemployment rose, jobs were lost, and overall there is a sense that the economy will weaken from here. This is a deflationary signal to the market, indicating that the rate rise peak is near. The bond market is still pricing in more rate rises however, and once the stock market catches up to this fact, we could see some selling enter the market. At the moment, we seem to be balancing the US bullishness with the negativity of the rate expectations; this has left our market largely unchanged for the past week.

US Markets

US shares closed firmly higher again with each of the three major indices recording notable gains. Pushing markets higher was optimism that the US government debt ceiling will be lifted, with lawmakers stating that they are close to coming to an agreement. US economic data overnight was mixed, with fewer than expected jobless claims, while home sales were lower than expected. Overall there is a lot of negativity for US markets at the moment, but they seem happy to rise on any sign of positivity for the time being. The debt ceiling extension is one such thing, and should a deal actually be announced, expect a short-term bounce.

Seven of the eleven sector groups of the SP500 closed higher overnight, with Technology, Communications, and Discretionary stocks the strongest performers. Real Estate and Staples stocks fared the worst.

The SP500 jumped straight through the 4,170 resistance and immediately to the next level at 4,200. Should it break above 4,200, we will be seeing an uptrend for the SP500, with a possible upside target of 4,300. Should the index fall back from here, it will be back inside the sideways consolidation range of 4,050 to 4,200.

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