The XJO is expected to edge lower on open this morning following a small pullback in the U.S on Friday. Their futures sit marginally in the green.
Markets remain indecisive. Last week, most of our sessions were dojis, where we whipsawed intraday to both shed gains and retake losses. Roughly 7,000 and 7,080 marks the consolidation range which we are expected to continue trading within today. We are simply waiting for the U.S to give further direction.
We are tracking sideward at the bottom of the broader range our market has been trading in since roughly November last year. 6,900 remains the true floor, which we would expect to see if the U.S continues their descent down to their own next key target of 4,200. However, we would need to break 7,000 and 6,950 first.
We expect key supports and the bottom of the broad range to hold. For them to break, we would likely need to see a fundamental shift in market sentiment. This would be likely driven by a shift in sentiment on monetary policy and inflation, or something out of the blue (the recent government shutdown scare in the U.S for example). As it stands, the belief that rates will be higher for longer is solidifying, which markets will get over soon. Although this can change as we head into the end of the year as inflation data comes out, we would expect a rebound in markets prior to then. This also coincides with a seasonal trend where October can be quite bullish when preceded by a negative September.
Overall, as it stands, despite bearish sentiment underpinning markets, we expect key supports to hold, and a recovery over the next couple of weeks. Hopefully key economic data remains neutral to deflationary to facilitate this.
We have an RBA interest rate decision tomorrow at 2:30pm. It is expected the RBA will keep rates on hold, however another rate rise before the year is out certainly remains on the table and we would expect a cautionary tone from the announcement.
Other news this week include U.S PMI data tonight. Powell is also expected to speak tonight. On Wednesday the New Zealand central bank will give an interest rate decision. On Wednesday night, the U.S will continue releasing PMI data. To finish the week, on Friday we have local retail sales, and U.S employment data.
US Markets
US shares closed lower on Friday as the US government headed into the weekend without a funding deal. Over the weekend however, lawmakers were able to reach an agreement that will allow the government to stay open for another 45 days, so a longer-term deal can be negotiated. US economic data on Friday was fairly mixed, with personal consumption growing by a smaller than expected amount in August, while inflation expectations increased. US markets were initially higher, after weaker than expected European CPI, but they were unable to maintain the gains and closed lower.
Four of the eleven sector groups of the SP500 closed higher on Friday, with Discretionary stocks the strongest performers. Energy stocks saw the most selling.
The SP500 index climbed to the next resistance at 4,330 on Friday before pulling back. The index did show a ‘morning star’ pattern earlier in the week and it did record a higher high and low on Friday. However, 4,330 will have to break before further gains look likely. Should the index resume selling, the recent lows around 4,250 are likely to act as support.
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Advisor at TradersCircle and Emerald Financial
Joining the team at TradersCircle in 2011, Karo has extensive experience in both investing education and derivatives trading.
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