The XJO is expected to open lower this morning following a tumultuous night of selling in the U.S which saw them rebound from resistance lower, but retake almost half their intraday losses by close. Their futures have edged into the green this morning, which at least means at this stage that their selling isn’t being immediately met with more. Our market is translating this to an open on key support at roughly 7,080. This also marks the bottom of the channel which should hold today provided U.S futures don’t turn too harshly red. Indeed, if U.S futures can remain positive, then we may even see us rhyme last night’s move and retake some of our opening losses this morning.

Local bond yields jumped across the board, indicating that the market believes that not only higher interest rates are to come, but that the recent hold means the tightening cycle has now been extended. This likely exacerbated our falls yesterday, and likely contributing to the continuation lower this morning.

Ultimately, despite the relief rallies, lower CPI, the interest rate pause we have seen recently, it simply is not enough to shift the negative sentiment around inflation, the economy, and monetary policy that has underpinned our market. It could be argued that part of the reason we have held the channel is because the U.S has managed to uptrend and make new highs throughout our lamenting. If the U.S does have a meaningful pullback from resistance, our market could easily break lower with the next target back down near 7,000.

US Markets

US shares closed lower overnight, with each of the three indices finishing firmly in the red. This comes after mixed US economic data overnight, with a bigger than expected rise in jobless claims, while Services and Composite PMIs were better than expected. US markets will face more key data tonight with their employment report. With US markets trading around yearly highs, this report is quite risky, as a strong read could be seen as inflationary, while a weak read could be seen as recessionary. Regardless, the US Federal Reserve is expected to lift rates further when they meet at the end of the month, and investors are instead trying to gauge how many more rate rises will come after that, and whether a recession will be avoided this cycle. Recent strength has come from US markets due to investors pricing in just one more rate rise, and that a recession will be avoided. This narrative will face a major test next Wednesday with the release of US CPI (inflation) data for June.

Every major sector of the SP500 closed lower overnight, with Energy the worst performer, followed by Discretionary, and Utilities. Ever other sector saw notable selling, with Technology stocks the least affected.

Technically, the SP500 has held below the key resistance at 4,450 and looks like heading back towards the recently broken resistance of 4,300, which could act as support against a downside move. This level is also roughly where the uptrend line sits, which could also act as support. Should the index rise from here, the recent resistance level at 4,450 would have to break before further gains look likely.

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