The XJO is expected to open lower this morning following a pullback in the U.S overnight on the back of a marginal unexpected rise in their headline inflation.

They pulled back to their key support and managed to rebound from it intraday to retake some losses into the close. However they are also forming a lower peak, which would indicate their market is continuing the downtrend. Our market will follow suit this morning, with the pullback to 7,040 showing the beginning of another lower peak. There is a short-term uptrend line which we will test this morning, but with U.S futures marginally in the red our market may give up and extend the losses into the afternoon session and break it.

7,000 is the next key support, followed by 6,950 and then the recent and yearly lows of roughly 6,900. The inflation reading wasn’t too bad, but the bond space looks increasingly unfavorable, so don’t be surprised if we retested 6,900 as the next broader move for our market.

US Markets

US shares closed lower overnight after US CPI for September came in higher than expected. CPI is taken as a measure of inflation, and the reading is not what markets want to see in the inflation/interest rate battle. As a result of the announcement, investors increased bets on more US rate rises, and US government bond yields pushed higher. It should be worth noting that September did include a large rally in oil prices, which have since moderated. Regardless, the reading could support the case for another US rate rise in the months ahead. US markets are also at the start of a company earnings reporting season, with many large companies reporting earnings tonight, while markets are likely to focus on the macroeconomic situation on interest rates and inflation, we could see stock and sector specific movements based on the strength of company reporting.

Nine of the eleven sector groups of the SP500 closed lower overnight, with Materials the worst performers, followed by Utilities, and Real Estate stocks. Energy and Technology stocks managed to record very small gains.

Technically, the SP500 has stalled over the last few sessions and looks to be finding some resistance around 4,385. Though the SP500 held the support at 4,335 intraday, with the higher CPI, and the stochastic starting to turn, the index could head back towards recent lows around 4,220-4,240 index points. However, should it reverse higher and close above 4,385, we could see a move back to 4,440.

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