The XJO is expected to open higher following a recovery in the U.S on Friday. Their futures are flat.

For a moment there it looked like the U.S was going to break lower with its strong pullback last Thursday. However, during their Friday session they were able to retake much of the previous session’s losses and move back into the comfort of their recent consolidation range. Our market took their bearishness as a sign of further falls, and moved back to the comfort of 50 day MA. However, with their rebound on Friday, we are set to bounce off both the 50 day MA, and key support at roughly 7,700 this morning.

We are set to open near 7,775. Come open though, we may pullback to flirt with 7,750 key resistance. If we hold strength, we could push higher to flirt with 7,800 key resistance. However, we shouldn’t expect too much more today.

Looking at the market more broadly, we continue to trade in the sidewards channel. The top of the range is roughly 7,850 to 7,900 (our all-time high). The bottom of the range is 7,500 to 7,550. We recently tested the top of the range and failed. Typically, we would expect to eventually head back down towards the bottom of the range. However bullish sentiment underpins markets and so our channel could easily have a bullish tilt. This could translate to a break of the all-time high before we pullback. It will largely come down to how the U.S trades, which largely hinges on economic data releases.

The Fed has been largely dovish in the face of stronger than expected key economic data since the start of the year, justifying its position with the belief that the strength was likely transitory. Well, they have been largely vindicated with the past few key readings. Inflation, employment, and retail sales all came in softer than expected over the past couple of weeks. This spurred the recent bull run and pushed the U.S into fresh all-time highs.

Markets wants to see readings that show a softening economy, so that the idea of rate cuts this year moves closer to becoming a reality. However, it also likely doesn’t want to see the economy soften too quickly. If we can continue to get these “Goldilocks” readings, then markets should remain positive.

In the week ahead, we have local retail sales numbers tomorrow at 11:30am (AEST). On Thursday night, the U.S has GDP numbers, which are expected to fall significantly from their last quarter. To finish off the week, the U.S has PCE data Friday night which is expected to soften slightly.

US Markets

US shares closed higher on Friday, with prices bouncing back towards the recent highs. There was some mixed economic data, with durable goods orders coming in stronger than expected, and with consumer inflation expectations dropping. With lower inflation expectations and with the recent lower than expected US CPI reading, markets were comfortable rebounding. Buying was led by large technology stocks, which happen to be quite interest rate/inflation sensitive. In general, economists seem to be picking September as the likely timing for the first US rate cut, with this cut acting like a carrot in front of the market and helping to keep prices high.

Ten of the eleven sector groups of the SP500 closed higher on Friday, with Communications and Technology the strongest performers. Healthcare was the only sector to close lower on average.

Technically, the SP500 has held the previous resistance level around 5,260 as support. This leaves the index in a very tight sideways range between the 5,260 level, and the recent all-time high around 5,320. We will need to see a close beyond one of these levels before a directional move will look likely.

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