Overnight US markets closed mixed. The Nasdaq pushed into a fresh high, as the Dow continued to sell off and the SP500 closed flat. Many were expecting the US markets to become volatile this week on the back of the FEDs announcement where they moved forward their expectations of rates hikes to 2023. At this stage, we have not seen the market react. Selling in the bond space will be the trigger here, Thursday the US 10-year yields jumped over 5% but only to retrace almost all the movement last night. Last nights move indicates buyers were willing to come back in.
We have what they called the triple witching event tonight, it is the simultaneous expiration of stock options, stock index futures, and stock index options contracts all on the same day. It happens four times a year. This could cause some volatility in the underlying instruments as traders adjust or take exercise on their derivatives. The end of June often can be very whippy with triple witching and investors adjusting portfolios coming into the end of the financial year.
Overnight commodities took a hit with many blaming China, as more and more articles emerge suggesting they are realising reserves and cracking down on hoarding in commodities markets. Metals are the most noticeable movers that could affect the sentiment in Australia. Iron Ore continue to hold above US$200 a tonne. The Dalian futures were up again overnight but we are yet to see a port price reported.
The XJO is expected to open flat this morning despite both strong falls in the U.S overnight and their negative futures this morning. This resilience is welcome, and follows an out of character strength our market has possessed over the past month in spite of a flat to bearish U.S market. Considering U.S futures aren’t heavily selling off, our market may be interpreting this as a sign of stability at this stage and therefore no reason to panic. One can’t help but feel though that this may be short lived. If U.S futures show signs of a continued run down following the Fed news, then our market will likely tip and start pricing in the previous and expected falls.
The next support, which we could expect to hold if the falls lack conviction, is the previous top of the consolidation range at roughly 7325. Beyond that, we have roughly 7250 and 7200 as the next key targets. Finally, if we see an excessive move down, we would expect 7100 to hold which is also where roughly the long-term uptrend line comes in.
US shares closed lower on average overnight, though strength in technology stocks was enough to force the NASDAQ higher on the close. US shares traded in a relative calm after the Federal Reserve minutes from the night before. Economic data was somewhat negative, with Jobless Claims and Philadelphia manufacturing both weaker than expected.
Some have suggested that movements were subdued overnight due to a convergence of equity and index derivatives expiries tonight in the US. Strong continued selling in commodities overnight caused big drops in the Energy, Materials, and Industrials sectors, while Financials stocks fell extremely strongly as well. Technology and Healthcare stocks were the strongest performers overnight.
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