The XJO is expected top edge higher on open this morning following an indecisive night of trading in the U.S that saw their market finish fairly flat. Their futures have moved into the red.

Yesterday our market flew higher on the back of a lower-than-expected CPI (QoQ) reading. We gave up some of the gains into the close however, and finished at 7,400. We could not commit to the break higher yesterday, and though we are expected to edge higher this morning, if U.S futures remain in the red during our session we will likely pullback and hold the key level of resistance.

Ultimately, the lower inflation read is a positive step towards ending the rate hike cycle. However, we remain at full employment. With the last two reads of inflation coming in lower than expected, the RBA has more reason now to be dovish, though will still likely want to raise rates at least once more and probably twice.

If we do see some selling, then 7,280 to 7,300 is the next clear support. This could be caused by the U.S which looks overbought. Their interest rate decision last night was largely a non-event, though they may be simply having a delayed reaction. If they can remain vigilant and strong then our market will likely continue higher with 7,450 as the next level of resistance beyond 7,400.

US Markets

US shares closed flat overnight after the US Federal Reserve lifted US interest rates to a 22-year high of 5.50%. The ‘Fed’ also left the door open for more rate rises if there are signs that inflation is remaining strong. Other economic data overnight showed fewer than expected New Home Sales, and a smaller than expected drawdown in US Crude Inventories. On the earnings front, Meta (Facebook) traded higher in aftermarket trading following its report, while Alphabet (Google) also rose following its announcement. Microsoft closed lower after disappointing earnings results. Overall, US shares remain near their 16 month highs at the moment, and it seems that there is little that could drag them lower in the short-term. That being said, upwards movement has definitely slowed and prices have largely gone sideways for the past week. With valuations looking very expensive up here, do be careful of the potential for a US market pull-back in August.

Five of the eleven sector groups of the SP500 closed higher overnight, with Communications the stronger performing sector. Technology stocks saw the most selling on average after the Fed rate rise.

Technically the SP500 is slowly continuing on its uptrend but may not be forming some resistance around the 4,580 level. Should this level break, there is a potential historic resistance level not far away at 4,600. Should the index fall from here, recent resistance at 4,450 may now act as support.

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