Australian Markets
The XJO is expected to edge lower on open this morning. The SP500 last night tried to break through their recent highs. Had they held their ground, they would be close to highs they hadn’t see since August last year. However, they sold off intraday to finish fairly flat. Coupled with their flat futures, our market remains uninspired.
We have a local CPI indicator reading today at 11:30 (AEST). CPI is expected to come in at 6.4% for the month, down from 7%. Our market will want to see 6.4% or lower. If we see a higher reading, there is a high likelihood our market doesn’t respond well. Over roughly the past month we have deviated from the U.S. Our market is trending lower, and their market is trending higher. A large factor contributing to this deviation would likely be that we are pricing in further rate rises than previously anticipated, whereas the U.S up until very recently was expected to stall.
Our market continues to trade in a broad pennant. There seems to be a broad underlying uptrend line in play, however the medium-term downtrend line looks more reliable with more touch points and has been affecting our market in more recent trading. All three moving averages are converging around here, indicating that our market is trading at a point where it doesn’t want to be too oversold or too overbought by that metric. As we all know, we are waiting for something to get us trending again.
US Markets
US shares closed mostly lower overnight, with each of the three major indices finishing mildly in the red. US jobs data overnight came in a bit better than expected, which leaves the door open for another potential rate rise in the US; the US Federal Reserve will meet in Mid-June to decide whether or not to lift again. Overnight we also saw OPEC oil production numbers, which came in pretty strong, while there was also a build-up in US oil inventories, both of which forced oil prices lower. On the debt ceiling front, the deal will face a key test today as the house of Congress will vote on the deal soon after the Australian market starts trading at roughly 10:30 AEST.
Five of the eleven sector groups of the SP500 closed higher overnight, with Utilities and Healthcare the strongest performers. Energy stocks saw the most selling again overnight, while Industrials also saw notable selling.
The SP500 remains in a sideways consolidation range, below the 4,200 resistance and above the support levels around 4,100. We will need to see a break of these levels before further movement is confirmed. However, the index also looks to be gradually setting higher peaks and troughs, which does suggest that the resistance at 4,200 could break, perhaps with a successful passing of the debt ceiling deal.
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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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