US markets finish higher despite Fed tightening bias, XJO to open week stronger

The XJO is expected to open higher this morning following a tumultuous night of trading in the U.S on Friday, which saw their market rebound intraday from their lows to finish in the green. The fact their big red day on Thursday night didn’t lead to extended selling is likely a large contributor to our expected positive open. Their futures have also edged into the green.

Our session on Friday indicated that we are still happy to hold key support at 7,100 as we bounced from it intraday to retake some of the session’s losses. Today’s expected rally will help confirm that we are happy to hold these levels and consolidate provided the U.S does the same.

We should open near 7,150, and if U.S futures remain positive during our session today, we may see a move back towards 7,200 which is the next key level of resistance.

Despite the relief that we are holding for now, there are still stronger headwinds for markets than tailwinds. Technically, there is likely a downtrend line in play which comes in at roughly 7,200-ish. Beyond that, we have key resistance at 7,250, which is also where the 200, 100, and 50 day MAs have converged. For our market to make it through these levels and back to 7,300, the bulls would have to return with gusto – their resurgence likely heralded by transformative fundamental events. This would typically be something to do with very key pieces of economic data or, of course (and more likely), key price data and positive developments in the interest rate narrative.

Unfortunately, our market is quite dramatic at the moment, with any whiff of selling overseas translating to an over exaggerated and immediate response. Overall, we need to be aware that it seems more likely, at this stage, we see 7,000 to 6,900 before we 7,300 to 7,400.

Tomorrow, the new governor Michelle Bullock, who is taking over from Lowe this month, is set to speak after market. It will be interesting to see what she says, and how the market reacts. It could very well be a non-event. On Tuesday night, we have U.S consumer confidence numbers. On Wednesday night we have both employment and GDP data from the U.S. On Thursday we have Chinese manufacturing PMI data and on Thursday night we have Eurozone CPI and U.S PCE price data. To finish off the week, we have local home loan data, and U.S unemployment data that night.

Finally, this week will finish off company reporting. Key reporters today would include, APX, FMG, and MIN. If you were interested in pricing up reporting strategies like strangles and straddles (which seem to be doing well this season), then price up BXB for Wednesday, and BOQ, HVN, and SFR for Thursday.

US Markets

US shares closed higher on Friday, with each of the three major indices finishing in the green. Prices did initially trade lower, but they rebounded to finish near the highs of the day. It was a volatile session after comments from Fed Chair Jerome Powell who stated the “Fed’ may need raise rates further in response to persistently high inflation. Still Powell acknowledged that inflationary pressures have eased somewhat, and that the level of inflation has greatly been reduced. Still the speech was more hawkish than dovish, and unless we see economic data deteriorate in the US across the next few weeks, there is a reasonable chance of another rate rise. There was a lack of other major US economic data, and there will be nothing major on this front for the next few days. Instead, markets are likely to fluctuate as investors reprice their rate rise probabilities based around Powell’s speech.

Every major sector of the SP500 closed higher on Friday, with Energy, Discretionary, and Industrials stocks the strongest performers. Communications stocks saw the least buying.

Technically, the SP500 held above support at the lows on Friday, before bouncing to close in the green. The recent lows at roughly 4,330 would be the support level to watch – should it break, we are likely to see further falls. Should the index continue higher after Friday’s gain, the recent peak around 4,450 would be the level to break before more gains will look likely. This leaves the index roughly in the middle of no-mans-land and waiting for a directional signal.

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