The XJO is expected to open higher this morning despite a pullback in the U.S last night.
Our market is being remarkably resilient. The past couple of sessions have seen our index retake intraday lows to finish flat or slightly in the red. This morning, we are set to bounce higher, with an expected open near 8,075.
The US gave up their intraday losses to finish in the red last night, but their futures are mildly in the green. Coupled with their market remaining in the consolidation range, the XJO likely feels comfortable retaking some ground and continuing its own sideward march. Furthermore, both the materials and the financials were up last night, with tech being the main let down. The financials and materials are our two largest sectors, making up over half our index, whereas tech has little say. Historically this wouldn’t have mattered to much and we would have simply sold down anyway, but its almost refreshing to see our market react logically.
Finally, US GDP data came in higher than expected, helping stave off recession worries, but not high enough to push the expected rate cut out. Our market likely only wants the U.S to cut once this year. Two cuts puts us in too much dissonance between their cut cycle and ours as we are very unlikely to cut this year. One cut however helps puts a bit more pressure on our RBA to be a bit proactive before the dissonance reaches a point of issue.
8,100 remains key resistance, and it seems reasonable we test it today provided U.S futures remain positive. It is hard to suggest where markets go from here. Positive sentiment clearly underpins markets, even in this sideward consolidation, and especially with these goldilocks’ readings from the U.S. However, markets are quite expensive, and remain overbought by short-term metrics. A mean reversion seems healthy and to be expected. The consolidation over the past week sort of shows that markets feel the same way.
US Markets
US shares closed slightly lower on average overnight despite initally trading firmly in the green. US markets rose after GDP, Jobless Claims, and PCE data all came out better than expected, with the economy growing at a stronger rate than initially expected in the second quarter. The result was driven by strong personal spending, which could create inflationary issues down the line however. US markets were dragged lower by NVIDIA, which closed around 6.5 percent lower after report fairly strong looking earnings results.
The selling was likely driven by just how expensive the shares are, as well as a softer than expected forward outlook. Tonight we will get the full PCE price report, which is expected to show a slight rise in the FED’s chosen measure of inflation.
Seven of the eleven sector groups of the SP500 closed higher overnight, with Energy the strongest performing sector, followed by Financials and Industrials. Technology stocks were the worst performers after NVIDIA’s report.
Technically, despite some strength over the past few sessions, the SP500 has been unable to exceed the high of Thursday last week. The index does remain on an upwards movement, but should we see a bearish candlestick from here, that would indicate a move lower. Should the market rise beyond that resistance, at roughly 5,650 index points, that would indicate further upside.
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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.
Latest posts by Sam Green (see all)
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