The XJO is expected to edge higher on open this morning following both a small rebound in the U.S last night, and their marginally higher futures this morning.
The XJO was rattled yesterday by another 25-basis point rate increase from the RBA. It shouldn’t have come too much as a surprise considering the strong inflationary data we have seen from different sectors of the economy recently. Following the announcement the market dropped hard, had a small recovery, but finished at the largely the lows of the day. 7,130 managed to hold, and this morning we may some retracement. Our market is likely still looking for a reason to fall, with likely only the positive move in the U.S last night keeping us subdued for now.
We have been bouncing between the 200 and 50 day MAs for roughly the past couple of weeks, with us finishing virtually at the 200 yesterday. We also remain in a broad pennant with the move lower yesterday showing a clear rebound from the strong downtrend line. Volatility has come back into our market, but its unclear where it wants to head as it travels to the point of the triangle. Typically, we would expect the underlying uptrend line to hold and the countertrend to break. However, the downtrend (countertrend) has been confirmed more actively in recent history and looks to be playing a bigger role in our market at the moment. We will have to wait and see.
We have GDP this morning at 11:30 (AEST). If the numbers come in worse than expected, our market might find some relief.
US Markets
US shares were flat-to-higher overnight, with each of the three major indices finishing modestly in the green. There was a lack of major economic data overnight, so prices instead continued with their current bullish momentum. The US is also heading towards an interest rate decision of their own, with the US Federal Reserve (FED) meeting next Tuesday and Wednesday to decide on rates, with the market pricing in an 80 percent chance of no change at this meeting. However, the odds of a rate rise from the Fed in July sit at around 50 percent.
Seven of the eleven sector groups of the SP500 closed higher overnight, with Financials the strongest performers, followed by Discretionary stocks. Healthcare and Staples stocks saw the most selling.
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Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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