The XJO is expected to open higher this morning following an extraordinary move higher in the U.S overnight. Their move was largely on the back of a lower CPI reading that vindicated pundits whom believe the Fed tightening cycle is at an end. Their futures are also in the green.

With the U.S crystalising their gains, our market should feel comfortable pricing in their strength which we have been tentative in doing the past few sessions. We should open near 7,100 which is a key resistance, however if U.S futures remain positive during our session today, it seems reasonable to expect a break higher. 7,150 to 7,200 are our next key levels after 7,100, which is also roughly where the 100 and 200 day MAs are. These seem like good targets for our market in the short-term.

We have our wage price index update this morning at 11:30 as well as employment data tomorrow at the same time. Our market will want to see these numbers come in softer than expected. If they come in stronger than expected, our market will struggle to rally with the same gusto as the U.S, and will likely exacerbate any profit taking and falls they may experience. In essence, even though our market’s daily moves are largely led by how the U.S traded the night before, and how their futures perform during our session, our local key economic data and monetary policy environment will add headwinds or tailwinds that will shift the underlying tone for our moves.

With the break higher this morning, it is now easier to suggest our market is shifting in trend. Since roughly August, it is quite clear our market had been trading in a downtrend, characterised by consecutive lower peaks and troughs. However, the recent retracement and consolidation has not been met with a sell back down to our lows. Instead, our market will break higher this morning, thereby returning to the previous peak at 7,100 and breaking the downtrend line. The recent consolidation could also be interpreted as a higher trough if you sort of squint, meaning we could be seeing the underlying trend shift to being an uptrend.

US Markets

US shares rocketed higher overnight after US CPI growth came in below expectations. Yearly CPI growth is now down to 3.2% in the US, which is not too far above target levels and a sign that the higher interest rates are working to bring down prices. This reading confirms the idea in the minds of many investors that US interest rates are at their peak, and that the next US rate move will be an eventual rate cut. As a result, US government bond yields fell strongly overnight as investors took the view that the Federal Reserve’s job is now complete. This doesn’t mean that rates will be cut anytime soon, but markets appear to be out of the woods for further tightening.

Every sector of the S&P500 closed strongly higher overnight, with Real Estate and Utilities stocks the strongest performers. Healthcare and Energy stocks saw the least buying.

Technically, the S&P500 has clearly broken higher overnight, with the index breaking above the next potential resistance level around 4,450. This next upside target would be a potential resistance level around 4,520, but if that breaks, which is definitely possible with the strong bullish momentum, we could see prices head back to the yearly highs around 4,600.

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