US shares keep jumping higher, dragging Australian shares with them

The XJO is expected to open higher on open this morning following a renewed rally in the U.S overnight.

We should open near 7,630 – right on our key level of resistance and practically at our all-time highs. U.S futures have moved into the red this morning, so it seems unlikely we will have the conviction to break through. If we see a turn around in U.S futures, we could peak our head through, but that will likely be the extent of it.

It’s been an almost an unchecked run higher over the past week or so, and we are certainly looking overbought by short-term metrics. Coupled with our market expecting to test all-time highs this morning, it seems reasonable to expect a pullback soon. We will of course need to wait and see, as there could easily be another leg up before we see any real profit-taking.

The catalyst this week seems likely to be local CPI tomorrow and the Fed interest rate decision tomorrow night. It is largely expected that rates will remain on hold, however all eyes will be on Powell’s future guidance, which is likely to keep the status quo of data-dependency.

US Markets

US shares continued their unbelievable move higher overnight, with each of the three major indices again seeing notable gains. The SP500 recorded another all-time high, its sixth in the past seven trading sessions. The move seemed to occur on little news, though the US treasury did announce smaller than expected borrowings. The move looks to be a continuation of the current upwards momentum in US markets. This will be a big week for US news and events, including the Federal Reserve interest rate decision, which will be announced on Wednesday night Australian time. Though the Fed is very unlikely to change rates at this meeting, they are expected to signal the likelihood of rate cuts in March, which the market believes is a possibility. It is very possible that after the recently strong data, the Fed will discourage expectations of the March rate cut, which could present a downside risk for markets.

Ten of the eleven sectors of the SP500 closed higher overnight, with Discretionary and Technology stocks the strongest performers. Energy stocks were the only ones to close lower on average.

The SP500 broke above the next potential resistance level at 4,900, which could suggest further upwards movement. There are no prior levels of potential resistance to suggest where the move might stall, so we will have to wait and see. The next major test for US markets will come with the Fed’s January meeting, so look for that to potentially disrupt technical patterns.

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