The XJO is expected to open marginally higher despite a strong bounce from key support in the U.S last night. Their futures are flat, which may help explain our muted open, but it is more likely that our market is simply being cautious heading into the CPI reading today. Our market has also been rather dramatic lately, extending losses to the downside, and unwilling to hold onto any gains in what must be cynicism to any sign of a relief rally in the U.S.

CPI at 11:30am (AEDT) should prove to be a very sensitive release, as it is the last full quarterly report before next year. This is particularly important as the RBA has signaled a possible rate rise in that time frame. If CPI comes in higher than expected, the RBA will have more reason to rase the cash rate, however, if it comes in lower than expected, it may hold off and reevaluate next year. This should have a direct affect on our market, with a higher inflation reading leading to selling, or a lower inflation reading, leading to buying. If things come in mixed or as expected, our market may very well not react immediately and need the coming days to digest the implications – factoring it in alongside how the U.S continues to trade.

US Markets

US shares closed higher overnight, with each of the three major indices seeing reasonable gains. This came on the back of better than expected earnings results from US companies, including after-market reports from Microsoft and Google. Microsoft was trading firmly higher in aftermarket trading following its report, though Google was trading firmly lower. US economic data overnight showed better than expected manufacturing and services PMIs, which although positive for the economy, doesn’t necessarily point to the economic slowdown that will be required to stop inflation. Regardless, US bond yields drifted lower and US indices held above key support levels.

Ten of the eleven sector groups of the SP500 closed higher overnight, with only Energy finishing in the red. Utilities were the strongest performers overnight, followed by Communications shares.

Technically, the SP500 has held above a potential support level around 4,200 and showed signs of bouncing from this level overnight. This is also roughly were the 200-day moving average and longer-term uptrend line sit. However, in the short-term, the index is seeing lower peaks and troughs, so it might not rebound all the way back to its recent peak, and could perhaps stall around 4,330 on a potential upside move.

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