US shares continued to trade in a cautious manner last night, with each of the NASDAQ, DOW JONES, and S&P500 closing lower for the third straight session. Movements were quite small and there was an absense of any major data to drive share prices in either direction. Despite the US selling, XJO futures are pointing to a modest rise on open for Australian shares, with futures sitting around 14 points higher.
US company earnings reporting started overnight with major industrial Fastenal rising after stronger than expected results. The earnings reports will start to come in earnest tonight with many of the large US banks reporting over the rest of this week. Many analysts have dropped earning expectations for this quarter, which could lead to a high number of earnings beats.
There seems to be a lot of chatter still around inflation, as Crude continues to jump and supply chain issues are yet to be resolved. This will continue to have investors worried about interest rates, although the chances of interest rates rising with this type of inflation is low. If consumer prices continue to go up it will slow economic growth as inflation is only going up from supply issues. A movement in interest rates will just make things worse. Both the FED and RBA have been clear that rates are not likely to go up any time soon.
Daily virus numbers worldwide are still declining. Locally NSW numbers are trending down. Victorian numbers also look to be finding a top. Vaccination numbers continue to climb as we are set to reach national targets in November. Nationwide we are at 82.8% first dose. NSW has hit 90.8% first does and has now surpassed the first target of 70% second does which saw their lockdown end yesterday. Vic is at 86.2% first dose and 60.4% second dose. At this stage, Vic is still playing some catchup but is likely to hit 70% second dose by the end of this month. There is a lot of positive talk around ending lockdowns and reopening the economy, which could explain some of our relative out performance for the past few days.
Many industrial metals including iron ore dipped yesterday, with iron ore finishing around 4.5% lower on the spot market. There has been lots of reports around relative weakness in the Chinese economy recently, with the Chinese government reigning in fiscal spending at a time when its economy could do with some extra government support.
The XJO is expected to rise on open this morning following a similar move from the U.S last night and their positive futures this morning. Our open will have us test the 7,300 level which has acted as resistance recently and is where the short-term downtrend line roughly comes in. We are trading in a pennant pattern, with little room to go. We should therefore expect either the downtrend line or the short-term counter trend line to break in the coming days. The first target to the upside is 7,400, and 7,200 for the downside. Which we get to first will continue to be dictated by the U.S.
Iron Ore has pulled back after a strong retracement from its lows. This has caused cautious investors into Iron Ore miners to sell down. Iron Ore and the mining sector might need to retest major support first before any serious commitment to buying occurs. The financial on the other hand continue to track sideward art the top of the range, trading in a broad ascending triangle.
US shares closed higher overnight with the NASDAQ and SP500 closing firmly higher, while the DOW JONES was flat. Overnight the Federal Reserve released their policy minutes from their latest meeting, where members agreed to reduce emergency support to the market; the notes seemed to provide investors with confidence, given the positive outlook of Fed members. We also saw several large companies report earnings overnight, with the JP Morgan, BlackRock, Delta Air Lines, and just about every other stock beating their earnings expectations.
The US earnings season is just beginning and there are plenty more reports to come; this is usually a bullish time of year for markets as historically, around 70 percent of US companies beat their earnings estimates. We also saw US CPI data for September overnight, which was slightly above expectations. However, the Federal Reserve’s preferred core CPI read was in-line with expectations, showing that inflation is not rising beyond the Fed’s ability to control. Nine of the eleven sector groups of the SP500 closed higher overnight, with Utilities faring the best, followed by Materials, Technology, and Discretionary. Financials fared the worst.