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

Our open this morning indicates that our market is likely to have a breather today – which should come as no surprise considering the seven days of unchecked gains we have just seen (and in this interest rate environment!?).

Yesterday we finished at or near key resistance which comes in at roughly 7,350 to 7,400. This also marks our recent highs, and roughly where the downtrend started back in mid-April. This downtrend is now very much finished, and it seemed that once again the underlying uptrend won. However, with such a strong rally, it would be unusual not to see some kind of breather or profit taking over the coming days. This could manifest as a consolidation as we grind along resistance, or a short pullback to roughly 7,280 which marks the next key support. This is likely to be largely determined by how the U.S trades.

Yesterday sentiment was bolstered by RBA minutes which was likely interpreted as being less hawkish than expected. If economic data weakens from here, our market’s moodiness may switch to a sunny disposition with the expectation that the RBA will ease off the cash-rate-hike gas pedal.

US Markets

US shares closed lower overnight, with each of the three major indices finishing in the red. Prices did manage to recover somewhat from the intra-day lows, though general selling was seen with most sectors closing in the red. This was despite, or perhaps because of better-than-expected US construction data, with housing starts and building permits coming in higher than expected. This data points to perhaps more inflationary pressures than US investors expected, and so could be further justification for further Federal Reserve rate rises. Indeed, most economists predict that the ‘Fed’ will lift rates again at the July meeting. Tonight, we will see Fed Chair Jerome Powell testify to US Congress, with his statement likely to move the market depending on how hawkish or dovish he is.

Ten of the eleven sector groups of the SP500 closed lower overnight, with the strongest selling seen in Energy stocks, followed by Materials. Discretionary stocks were the only stocks to close higher on average.

Technically, the SP500 remains on a strong uptrend at the moment, with prices powering higher. The index may have found some resistance around 4,450 on Friday however, so this level will have to break for further gains to look likely. Should some profit taking continue, the recently broken 4,300 resistance level may act as support on a downside move.

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