US shares close higher with inflation continuing to fall

The XJO is expected to open mildly higher following a similar move from the U.S last night and their positive futures this morning.

Yesterday we practically rebounded off key resistance at 7,900 intraday and pulled back to give up most of the day’s gains. We settled back on the 50 day MA, which is also where the U.S finished last night as markets weigh up where to go to from here.

Our open this morning should have us test yesterday highs and the resistance at 7,900 again. It would be hard to expect us to push through today, unless U.S futures move harder into the green.

Markets look overbought in the shorter-term, however hard returned to an equilibrium at the 50 day MA. By that metric, the market is trading at the same average price it has for the past 50 sessions. Last night’s CPI reading sat in that goldilocks range, however Japan has GDP data today and if it comes in strong we could see markets sink. We also have local unemployment data today, where we will want to see unemployment either come in as expected or slightly higher.

US Markets

US shares closed slightly higher overnight, with prices continuing the recent upwards movement of the past week. Prices pushed higher after US CPI came in as expected, or perhaps even slightly lower, with lower CPI and PPI opening the door for US rate cuts beginning in September. It was the fourth month of easing underlying inflation in the US, with some now predicting the Fed will even do a 50 basis point cut when they meet in September. A 50 point cut still seems unlikely, but if US data deteriorates between now and then it is a possibility. US CPI is now at its lowest level since April 2021, which does show that the Fed has mostly achieved their mission of bringing inflation back under control. Now we need to see if there will be a soft economic landing. Markets also tend to rally to the point of rate cuts and then sell off after the cuts start.

Eight of the eleven sector groups of the SP500 closed higher overnight, with Financials the strongest performers, followed by Energy and Technology stocks. Communications stocks saw the most selling.

Technically, the SP500 closed higher for the fifth straight session overnight, with the index rising to potential resistance at 5,450, which is also where the 50-day moving average sits. Finally, there is also a potential downtrend line at the current level, drawn from the recent all-time high. Should the index fall from here, the 5,380 gap level is likely the first downside target.

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