The XJO is expected to open flat this morning. U.S futures are also flat at this stage.

The U.S pulled back on Friday night, but our market had already gone through the mill during our Friday session. We sold off for much of the day but bounced off both 7,600 key support and the 50 day MA intraday. We managed to claw much of our intraday losses to finish only marginally lower than what we opened at.

We can see Friday’s turn around reflected in the XFJ (Financials), where our major banks had a change of heart after selling down for most the session. The XMJ (Materials) held their lows, keeping in step with their recent lamentation from falling iron ore prices.

The U.S is holding support and likely the uptrend line. Our market held 7,600, but broke our uptrend line. Cracks are beginning to show in a market that has remained overbought for a while now. However, just because we have broken the uptrend line, doesn’t mean we should expect a continued selldown as we can quite clearly see that momentum remains bullish.

The materials look oversold alongside iron ore, whilst the banks look severely overbought. We could easily see a rotation from the banks into the miners if Iron Ore has a relief rally. This could ultimately spell sideward movement in a broader range. 7,500 to 7,600 looks like a likely floor, with 7,800 to 7,850 as a likely ceiling. We will, of course, continue to be dragged along by the U.S in a broader sense, however shorter-term machinations will be on our own accord. This is largely due to our miners down trending, but also much of the rally in the U.S being driven by tech which is not well represented in our market.

Tomorrow, we have an RBA interest rate decision where it is expected they will keep the cash rate at 4.35%. Of course, the market will be looking to Bullock’s future guidance on expected rate cuts. In her last statement, she was careful to finish her statement by reminding us that rate rises aren’t off the table. However data recently has been poor, which should draw more dovish tones from her statement tomorrow. It seems likely that they remain on the fence and this RBA meeting goes relatively unnoticed by the market.

The U.S also has a Fed interest rate decision on Wednesday night. They have seen stronger than expected data largely since the start of the year. Powell should come out and warn the market that rates will need to remain higher for longer, and we have bond yields creeping up as evidence of this. Their market has been rather impervious to stronger than expected economic data. Perhaps it is simply turning a blind eye, or perhaps they see the data as supporting a “soft-landing” narrative. If Powell delivers a hawkish message Wednesday night, it may the catalyst their market needs to provoke some profit taking.

Aside from the two rate decisions, we also have local unemployment data on Thursday, which is expected to remain sticky around 4%.

US Markets

US shares closed lower on Friday, with each of the three major indices finishing lower. Overall, shares continued to sell for the third session, with investors worried about the recently strong US price data, with concerns that it could push out the rate cut timetable towards the second half of the year. We will get an update from the Fed this week, with their March meeting finishing on Wednesday night. Investors will be looking for any signal in a change around rate cut timing, which could trigger market movement. Overall, after rallying for four months straight, US markets do look overbought at the current levels, without any meaningful selling for some time.

Four of the eleven sector groups of the SP500 closed higher on Friday, with Energy seeing the most (yet still modest) buying. Technology, Discretionary, and Communications stocks saw the most selling.

Technically, the SP500 held below the all-time high resistance at roughly 5,170 index points. However, it also held above the potential support level around 5,100 index points. This leaves the index trading in a very narrow range and we will need to see whether it breaks to the downside or upside. Should it break to the downside, we would expect a move back to 5,000 – 5,050. Should it break higher, it would be trading in fresh all-time highs.

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