The XJO is expected to open around 15 points lower this morning, at roughly 7,780 index points. This comes after US markets saw slight selling on Friday, though movements were small. The Australian market continues to be pulled higher by strong US markets, with the fresh all-time highs in the US helping to spur buying here.
Recent weakness in iron ore continues to drag on our market, and indeed, we saw further selling in iron ore on Friday. While the iron ore miners have fallen, the banks have had to fill the gap and rise to keep our XJO somewhat joining in the US’s positivity.
The major event locally this week will be Wednesday’s monthly CPI indicator for Australia, which could trigger directional movement. Our market wants to see inflation continue to fall, and if it does, we could see a return to our highs around 7,900. There will also be a US PCE price data release on Friday night, which is a measure of inflation for the US.
Technically, our XJO has bounced off support around 7,700 and has perhaps broken through some resistance at 7,780. We would now expect our market to continue higher, with the next potential level to the upside being the 7,850 level, which was resistance at the start of June. To the downside, 7,700 remains the key support level to watch.
US Markets
US shares closed lower on Friday after a back-and-forth session. It was a fairly quiet session overall, with few sector seeing strong movements. US economic data showed stronger than expected expansion in the Services and Manufacturing sectors; with stronger economic data reducing the likelihood of rate cuts this year. Overall, US markets continue in longer-term uptrend, with a series of higher peaks and troughs. US shares have had just about everything they could ask for come true, with inflation slowing, the economy is avoiding recession, and rate cuts are likely coming in September. However, prices are extremely expensive, and US indices keep getting dragged higher by increasingly fewer stocks. US shares are likely to continue higher in this environment, but don’t be surprised to see gains come slower, and for profit taking pullbacks to occur.
Discretionary stocks saw the most buying on Friday, while Communications also saw notable gains. Technology stocks saw the most selling, followed by Energy stocks. Most other sectors were flat.
Technically, the SP500 is on an overall longer-term uptrend but it may have found some resistance at 5,500. 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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Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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