The XJO is expected to edge higher on open this morning following both a strong move higher in the U.S on Friday and their flat to positive futures this morning.

This U.S had strong gains on Friday, but our market is only meekly translating this to roughly a thirty point gain this morning. This tests the highs of the past couple of sessions of consolidation as we await the RBA interest rate announcement tomorrow at 2:30.

With the last inflation reading (5.6) coming in a decent measure lower than expected (6.1), it would be reasonable to believe that chances of a rate rise this month are smaller than prior to the reading. However, much of the reduction in inflation was on the back of falling oil prices – but lower inflation is lower inflation. Commentators are unsure, putting it to roughly a coin flip and we feel much the same way in the office. The RBA needs to get inflation under control, but will also want to space out the rises to both monitor the effect of the recent rises and perhaps for political reasons. Regardless, it is likely to have an immediate effect on the market.

Technically, the market is hanging around the middle of the channel between roughly 7,375 as the ceiling, and roughly 7,075 as the floor. The U.S is holding strength, and their positivity should help keep our market elevated. However, they are trading at key resistance and their recent highs so there is a decent chance they fail here.

It’s important to remember that even if the market is moving fundamentally (and not technically) from events like an interest rate announcement, it will still likely move and stall at key resistances or support. Keep an eye on important levels.

Aside from the interest rate announcement tomorrow, we also have local retail sales numbers on Wednesday, FOMC minutes and U.S nonfarm payrolls on Thursday, and U.S unemployment data on Friday.

US Markets

US shares closed firmly higher on Friday, with each of the three major indices closing in the green. The move was driven by the continued strength in large US technology stocks, with Apple reaching a new all-time high, while other majors also saw strong gains. The rally came after European CPI came in lower than expected, as did a measure of US prices, while US personal spending also dropped. Overall, the data was seen as disinflationary, which lowers the likelihood of further interest rate rises moving forward. The US Federal Reserve is still expected to raise rates when they meet later this month, but many in the market are convinced that this will be the last of the rate rises. For his part, Fed Chair Jerome Powell continues to state his belief that there will be at least two more rises from here.

Every major sector of the SP500 closed higher on Friday, with Technology stocks the strongest performers, followed by discretionary stocks. Every other major sector closed higher to some degree.

The SP500 closed right on the key resistance at 4,450 on Friday, this level would have to break for further gains to look likely. Overall the index remains on a strong uptrend so there is every chance this level does break. Should the index resume falling from here, the recently broken resistance of 4,300 could act as support against a downside move. This level is also roughly where the uptrend line sits, which could also act as support.

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