The XJO is expected to open higher once again on the back of a positive move last night in the U.S. Their futures sit flat.

Yesterday we rallied harder than what the morning was indicating. This came as a bit of surprise as we head into a very important CPI reading in the U.S tonight. Though in fairness, a relief rally was on the books considering the hard and fast selling we had just experienced.

We are expected to extend yesterday’s gains and open near 7,150 which is both a key level of resistance and where the 200 day MA comes in. It may simply be our market is returning to the safety of the 200 day prior to the reading tonight.

Be mindful that following these gains our market now has a better base to sell from and continue the downtrend if the U.S reacts poorly to their reading over the coming days.

7,200 is the next key level which is also where the 50 and 100 day MAs come in. Otherwise 7,080 and 7,000 remain the key supports.

US Markets

Our XJO is expected to open around 40 points higher today at roughly 7,150 index points. This comes after a further gain for US shares overnight, which continue to grind higher. US markets will face a key test tonight with the US CPI reading. The reading is expected to show inflation falling back to a manageable 3 percent, and while core inflation is expected to remain sticky, its also expected to record its lowest level since 2021. This slowing inflation is giving real optimism to US markets, and is a sign that US rate tightening might soon be coming to an end. Locally, our numbers aren’t anywhere near as rosy, but it seems that the US optimism is rubbing off on our own market. Look for a move to 7,200 for our XJO, and if that breaks, potentially to 7,280. Today we will also see a speech from RBA Governor Lowe, who should point to the further tightening required for Australian interest rates.

Negative factors are starting to build-up in the medium term and a notable sell-off, perhaps below 6,900, shouldnt be too unexpected in the later parts of this year.

Depending on the severity of the coming economic downturn, policy makers will eventually shift from tightening to stimulus. For markets to make a complete recovery to all time highs, we will need to get a narrative where Central Banks and governments will start to ease and stimulate again. This might not be until 2024 or 2025.

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