US markets continue to drift, relatively flat open expected

The XJO is expected to edge lower on open this morning following a small pullback in the U.S overnight. Their futures have edged into the green.

Our market pulled back yesterday to test the short-term uptrend line and this morning we should test it again. With U.S futures in the green, we may continue to hold until the local inflation data at 11:30am (AEDT).

Local unemployment data came in weaker than expected last week. Our market’s initial reaction was to fall, but we quickly bought back up. Stronger than expected macro-economic data pushes rate cuts further out, and bolster’s a higher-for-longer position from central banks. If data is strong enough, it could even push us back into the tightening cycle.

The reason why markets remain bullish despite the threat of elevated interest rates is likely because it indicates the economy is not heading to recession quickly. Of course, there is a disconnect between how the average person feels about their living situation verse what the data shows, but the market at this stage only cares about the latter.

However, this could turn on a dime. If markets feel that rate cuts are off the table this year, which will be more evident if data continues to be strong, then markets should pullback – especially when considering how overvalued things look in general.

Broadly speaking, our market remains in a broad channel. We have clearly held the top of the range, represented by the all-time resistance at 7,850. 7,750 looks like the next reasonable target. The stochastic also look overbought. Of course, it will still come down to how the U.S trades, and if they rebound from their support, then we could retest our highs – however at this stage it seems unlikely to push through.

US Markets

US shares closed lower overnight, with prices initially trading higher before falling back to close around the lows of the session. US markets closed lower with mixed economic data, with stronger Durable Good orders but lower Consumer Confidence. Additionally, a boat hit a major bridge in Baltimore which may have dented market sentiment. Overall though, US markets are treading water around the tops of their ranges, though they have drifted lower across the past few sessions. US shares have upwards momentum but they could wait around the current levels for the inflation data coming on Thursday night.

Three of the eleven sector groups of the SP500 closed higher overnight, though no sector saw substantial gains. Utilities saw the most selling, followed by Financials and Energy stocks.

Technically, the SP500 broke out of an ascending triangle on Wednesday last week, breaking above the previous all-time high resistance. Technically, the SP500 looks like continuing higher from here, though given these levels have never been seen before, its hard to say where the rally may stall, to the downside, the previous resistance at 5,175, which is also roughly where the uptrend line sits, is likely to act as support.

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