XJO to fall on rate concerns

The XJO is expected to open lower this morning despite another small rise in the U.S overnight.

We should open near 7,700 key support as our market continues to sell off. There are a few likely reasons for our extended sell down this morning. Firstly, U.S futures have moved into the red. Secondly, the financials were down overnight, which should put pressure on our banks which remain very expensive and arguably overbought. And finally, our weighted CPI came in stronger than expected at 4%. The least reading was 3.6% and it was expected to come in at 3.8%, so it is clear that inflation is proving difficult to wrangle. Our market fell 50 points within half an hour of the reading, as it pushes the RBA closer to returning to a tightening cycle.

The U.S has continued higher, and our market wants to keep up as much as it can. The banks have done the lion’s share of the work to keep us propped up as our miners lamented. It seems our market is (or perhaps was) hanging on by the skin of its teeth and that there are plenty of headwinds for our market. Our lamenting miners have found some stability alongside iron ore, but we could see a rotation from an overbought financial sector, into the materials, leading to continued subdued movement. In addition, it should be worrying that we are moving closer to a tightening cycle, especially with our GDP declining to a point where our economy will be in stagflation if things don’t change.

US Markets

US shares closed higher overnight, with strong technology stocks dragging the SP500, NASDAQ, and DOW JONES higher, while most sectors closed lower. There was an overall lack of major news or events again for the US market overnight, though there were fewer home sales than expected. US shares are continuing in a positive manner, but are extremely expensive up here, and fresh gains have been increasingly incremental. The next major event for US markets will be the PCE price data on Friday (which is the FED’s preferred inflation measure); though PCE growth is expected to hold fairly low, which is unlikely to trigger too much market movement.

Three of the eleven sector groups of the SP500 closed higher overnight, with Discretionary the strongest performer, followed by Technology. Energy stocks saw the most selling, followed by Financials stocks.

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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