The XJO is expected to open lower this morning following a strong pullback in the U.S overnight. Their falls are likely attributed to a stronger than expected CPI reading, which indicates that rate cuts are likely to be pushed further out.

U.S futures are also in the red and if they remain so during our session, selling should persist. We should open near 7,800, but expect to test key and local support at roughly 7,750. This would wipe off the past few days of gains. This is also roughly where a potential uptrend line come sin. If we fail from there, then 7,700 is the next key level which is also where the 50 day MA comes in.

Today will set the first lower peak we have seen in our index for weeks now. The previous instances of lower peaks have not eventuated into a change in trend – even in the short-term. However, unlike the last few instances, the U.S has been drifting lower over the past week or so. Coupled with a strong inflation reading last night, we could be seeing a shift in markets. We will, of course, need to wait and see how things develop.

US Markets

US shares closed lower overnight after the third strong monthly inflation reading in a row. This reading calls in to question the expected rapid series of Federal Reserve rate cuts that have been expected by markets this year. This result shouldn’t be too unsurprising however, as US economic data has continued to come in very strong. Attention will now turn to the Federal Reserve, to see if they (and perhaps more specifically, Chair Powell) will change their tone and acknowledge that they were perhaps wrong. US shares look very expensive compared to government bonds, especially if interest rates aren’t cut. We now need to wait and see if this triggers a revaluation of US shares. US shares are also about to enter a company earnings reporting season.

Only one sector groups of the SP500 closed higher overnight, with Energy closing slightly in the green. Most other sectors saw notable selling with Real Estate the worst performer, followed by Utilities, Materials, and Financials.

Technically, the SP500 fell back to the 5,150 level overnight, but it did hold above this level, we now need to see if it will close below this level, which could signal a move back to the next level at 5,100 index points. Should the index bounce from here, the first upside target would be 5,200 index points.

Want to learn how to trade?

The team at TradersCircle/Emerald Financial have released a free online stock market education course, click here to enrol and get started.