The XJO is expected to edge lower on open this morning following a small pullback in the U.S on Friday. Their futures have edged into the green.
The past few sessions have been very volatile, trading like a whipsaw. Each time we seem to make ground, we reverse and move back to the middle of the range. It seems we are very reluctant to move away from the 50 day MA and the comfort it provides as we wait for the U.S to give us further direction.
The miners seem to have stabilised alongside iron ore pricing. The banks remain expensive, so if our market is to continue trading in this range, we may see a rotation from the financials into the miners. We would need to see the U.S hold strength, however and they seem overdue for a pullback. When the U.S falls, our market will have no issue following suit. When this will happen is hard to predict, but they have enjoyed a very long stretch of gains that should ultimately lead to a correction at some point this year.
Markets remain focused on monetary policy, and therefore by extension, key macro-economic data like CPI, GDP, and employment. The U.S has rallied aggressively and continues to hold ground on the belief they will receive rate cuts this year, and their key macroeconomic data releases over the past month or so have supported that belief. However, our market is in a very different situation. CPI doesn’t seem to be falling at the pace we want it to. We are also at full employment. However, our GDP is growing only marginally. Unfortunately, the RBA has threatened to increase rates again if inflation doesn’t start to fall. Of course they are reluctant to, but have signaled that they will do what they have to if things don’t change track. This is very negative for our market.
In essence, there is a lot pushing and pulling our market. We like to follow the U.S, who are enjoying an environment where they should see rate cuts this year. On the other hand, our economy may move back into a rate tightening cycle which will make it harder to us to join in on further U.S rallies. In addition, our two largest sectors over the past couple of months have actively worked against each other to the point that the banks are extremely expensive, and the miners are relatively cheap. This could lead to them reversing and continuing to broadly work against each other.
This morning, we have retail sales numbers. The last reading came in at 0.1%, indicating that consumers are tightening their belts. Tonight, we have U.S manufacturing PMI. Tomorrow, we have RBA minutes from their last meeting, and tomorrow night Powell will speak. On Wednesday night there is more U.S PMI data, and minutes from their last Fed meeting. On Friday night, there is U.S employment data.
US Markets
US shares closed lower on Friday, with each of the three major indices finishing lower. Prices initially traded higher but they didn’t have the strength to break through recent resistance and they pulled back to close at the lows of the session. US markets were initially emboldened by the PCE price data, which showed that price growth (inflation) was slowing. However, US markets have well and truly priced in falling inflation and coming rate cuts, so this doesn’t seem like it was enough to force higher prices. Regardless, US shares are in an upwards movement and despite being very overpriced, we have to assume this will continue (albeit at an apparently slow pace). This week is also a quiet one for data, so don’t be surprised to see more sideways movement.
Four of the eleven sector groups of the SP500 closed higher on Friday, with Real Estate stocks the strongest performers. Communications, Discretionary, and Utilties stocks saw the most selling. Most other sectors were flat.
Technically, the SP500 is on an overall longer-term uptrend it has found some resistance at 5,500, it tried to break this level on Friday, but quickly fell back off below it. Should the market close above 5,500, the buying should continue and its hard to say where it will stall. Should we see selling, the previous resistance at 5,375 is now likely to act as support; should it break, we are likely to see further selling.
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Advisor at TradersCircle and Emerald Financial
Joining the team at TradersCircle in 2011, Karo has extensive experience in both investing education and derivatives trading.
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