The XJO is expected to edge lower on open this morning. This follows a U.S session which saw their market retake earlier session losses to finish marginally lower. Their futures have also edged into the red.

Our market didn’t not rally as much as we would have hoped yesterday, despite the strong leads from the U.S the night before. Our tentativeness is clear whilst we wait for the U.S CPI reading tomorrow night. We shouldn’t expect much in the coming days bar consolidation. Even if the U.S continues higher, expect our market to remain reluctant to price any meaningful gains in until the bulls are potentially vindicated by the reading.

It seems likely that the CPI reading will help set the tone for the first while of the new year. It is hard to know how markets will interpret it. We have been in a cycle for at least 24 months where poor economic data and lowering inflation is good for markets. However, this can easily flip. If the market decides that a soft landing is not likely, then bad economic data can easily start to be wholly negative for the market. When this happens is hard to know. Expect consolidation heading into the CPI reading.

US Markets

US shares closed mostly lower overnight, with the DOW JONES and SP500 finishing lower, while a strong move in NVIDIA kept the NASDAQ in the green. Shares partly reversed their strong move from Monday, though prices retraced most of their losses by the close. There was a lack of major US economic data overnight, and investors are instead looking forward to the major events at the end of this week, including the US CPI report and the start of the US company earnings on Friday. Overall, shares are remaining around all-time highs in the US, but the upwards momentum may be starting to slow. Friday’s CPI report will likely be the deciding factor in whether US shares witness more buying, or whether they see a pullback.

Four of the eleven sector groups of the SP500 closed higher overnight, with no sector making notable gains. Of the sellers, Financials, Materials, and Energy stocks saw the most selling.

Technically, the SP500 bounced off potential support around 4,700 index points on Monday, and despite the overnight pullback, the index is showing a bullish signal back to the recent highs (and roughly all-time highs) at 4,800 index points. That 4,800 level would be the mark to beat before further gains look likely. Should that level (or a lower level) hold, that would be seen as a bearish sign for the index.

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