The XJO is expected to open higher this morning following a strong jump from the U.S overnight. Their futures are flat.

Despite the stella run we have seen over the past couple of the weeks, the U.S managed to rally once again overnight, breaking the 50 day MA and the tentative downtrend line. Our market will follow suit this morning as we push higher towards 7,950.

7,950 is a level our market hung around during mid-July, but the next clear target is 8,000. Of course, to get there we will need to see continued strength from the U.S – and things are looking very tired.

In the short-term, we would expect markets to profit take. However, markets have been surprisingly strong despite the recent selldown, and it looks like the pump is back on. Markets will sell, but it is becoming harder to predict when.

Unemployment came in somewhat stronger than expected yesterday which likely helped cause an intraday pullback where we gave up most of the gains into the close. Future guidance on monetary policy from the RBA over the past few months has held firm that nothing is off the table, and that rate rises are a concerning possibility. Yesterday’s data would not put us on track for rate cuts. Indeed, it keeps rate rises on the table. The market still likely thinks the threat of rises is an empty bluff, but if key data like CPI and employment don’t cool, our market will become jittery as the potential for rate rises manifests.

This puts us in discord with the U.S. They are receiving goldilocks readings that indicate their economy is cooling, but cooling at a rate in which could achieve the coveted soft landing. As they move to rate cuts, our economy is moving towards stagflation with the threat of rate rises lurking in our market’s shadow. How we will square that circle is yet to be seen, and there will be plenty of data releases between now and then that will shape the whole situation for better or worse.

US Markets

US shares jumped strongly again overnight, with strong gains on each of the three major indices. This came on the back of strong US economic data, with retail sales and jobless claims better than expected, though industrial production was weaker than expected. In general, US investors are certain that rate cuts will come next month, so any economic strength is a bonus to this bullish outlook. The US SP500 closed higher for the sixth straight session, an unbelievable move considering the recent worries and selling. Prices are extremely expensive up here, but after throwing their tantrum over the past fortnight, they now believe central bankers will do what they want.

Nine of the eleven sector groups of the SP500 closed higher overnight, with Discretionary and Technology stocks the best performers, followed by Materials and Industrials stocks. Most other sectors saw a degree of buying, except for Real Estate and Utilities, which saw mild selling.

Technically, the SP500 closed higher for the sixth straight session overnight, with the index rising straight to the next potential resistance at 5,550, which is the peak from the start of August. Its hard to say what the index will do here. Technically, the overall movement remains an uptrend, and we could see a move back to the all-time high around 5,670. However, should the index stall here and record a lower or in-line peak, we do risk seeing some technical selling.

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