US markets and XJO futures flat, markets brace for US CPI

The XJO is expected to edge lower on open this morning following mixed and subdued trading from the U.S overnight which saw their market finish flat.

Markets are likely quiet as we head into a key CPI reading from the U.S on Wednesday night. CPI and monetary policy remain as the largest mover of markets, and so it’s not surprising to see markets hold their breath heading into a pivotal reading. We have the budget tonight, but this isn’t expected to be market sensitive in the short term.

Our market yesterday reached resistance at roughly 7,300 and rebounded from it intraday. 7,200 to 7,150 remains the next support and roughly where the 50 day MA comes in. If selling persists then 7,100 is the next key target, which is also where the 200 day MA comes in.

If markets react well to the CPI reading, which doesn’t seem likely at this stage, then we should expect a push through 7,300. This would have us contend with a potential broader downtrend line and our previous highs which come in at roughly 7,350 to 7,400.

US Markets

US shares closed relatively flat overnight, with prices unchanged ahead of the key data events of this week. Tomorrow night is the most important of these data items, with US CPI for April being released. CPI growth is expected to be unchanged from March, which is not what the market and Federal Reserve want to see, and which could lead to markets starting to price in more rate rises. On Thursday night we will see US PPI (producer prices) as well as jobless claims. The US government is also rapidly approaching its debt ceiling, which could comes as soon as the start of June, should a funding agreement not be reached. As the limit approaches, it could trigger volatility and selling in US markets.

Four of the eleven sector groups of the SP500 closed higher overnight, with only Communications stocks rising a notable degree. Most of the sectors to close in the red did so only slightly, with Real Estate seeing the worst of the selling.

The SP500 is trading in a bit of no man’s land, above the 4,050 as a support level from last week last week, but below the 4,170-resistance level. Its not at all clear which way the market wants to break, but should the 4,170 level break, the next upside target is very close by at the 4,200 resistance level. Should 4,050 break to the downside, the next target would be the 4,000 point level.

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