The XJO is expected to jump strongly on open this morning after a huge jump in US shares on Friday, our XJO futures are pointing to a rise of around 70 points, to roughly 7,290 index points. Technically, there is some resistance around 7,290-7,300, which would have to break for further gains to look likely. Should we break above 7,300, we would expect to move back to the April highs around 7,370. Should we resume falling in the coming sessions, last week’s low of 7,150 is the support level to watch.
We have seen some pretty mixed reporting from the major Australian banks, with a big miss from NAB on Thursday followed by a mild beat from ANZ and MQG on Friday. Today we will see WBC’s results, followed by CBA’s tomorrow. Overall these reports are doing little to help our market higher, and instead, strong earnings reporting from US technology stocks is doing more of the heavy lifting. Apple was the latest of their great reports on Friday, which sent US markets strongly higher, which we are reacting to locally today.
The rebound in US markets could potentially be disrupted by their CPI reading on Wednesday. Bullish investors will be hoping this reading comes in lower than expected, as it is expected to show that inflation remains sticky. Should US markets sell down after this number, our own market will likely follow.
Locally we will also see retail sales tomorrow, which will also be an important number on gauging whether the economy is slowing down and bringing inflation under control. Tomorrow we will also see the latest Federal Government budget, which could be the first surplus budget in 15 years. Markets don’t always respond strongly to the budget announcement, so its hard to say what the effect, if any, will be for the market.
US Markets
US shares rebounded strongly on Friday, with each of the three major indices finishing strongly in the green. Prices jumped strongly after a much better than expected US unemployment reading, which showed unemployment falling to just 3.4 percent, after more jobs were created than expected in April. This data is a bit inflationary, but it also supports the ‘soft landing’ scenario of the US economy potentially avoiding a recession despite the interest rate rises. Also supporting markets was a strong earnings result from Apple, which jumped almost five percent after exceeding analysts’ expectations. Regional banking stocks also jumped strongly after sell-down heavily earlier in the week. This week we will see US CPI for April, which will be released on Wednesday night Australian time. This reading could trigger movement as April’s numbers are expected to show CPI stalling after CPI growth slowed earlier in the year.
Every major sector of the SP500 closed higher on Friday, with Energy, Technology, and Financials stocks the strongest performers. Every other major sector also closed notably higher.
The SP500 has now held 4,050 as a support level twice in the last week – this is now the key support that would have to break for further selling to look likely. After bouncing from this level, the SP500 now looks bullish to the recent highs at 4,170. Should 4,170 break, the next upside target would be the 4,200 resistance level.
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Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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