ASX 200 looks set to benefit from Wall Street’s record highs: Asian Open

It was a mixture of good and bad data from the US on Wednesday, with slower employment growth contrasting with a better-than-expected ISM services report. Yet traders clearly placed a greater emphasis on the ADP employment miss on bets that a weak NFP report will be delivered on Friday. The S&P 500 and Nasdaq surged to record highs, bond yields were lower which allowed gold to rally.

ADP employment pulled back to a 4-month low of 152k from 188k prior, with many now eying NFP job growth to follow suit and send US unemployment above 4%. And this overshadowed a rebound in the services sector, with the ISM headline print expanding at its fastest pace in eight months at 53.8, new orders rising to 54.1 and prices paid edging lower to 58.1 from 59.2. Ultimately this revives hopes of a soft landing, with the growth engine still running yet with cracks widening in on what has been a strong jobs market.

The Bank of Canada became the first major central bank to cut interest rates, and likely snatching the title from the ECB by one day. The 25bp cut lowers their cash rate to 4.75%, although as predicted there were no clues of further cuts, with “risks to the inflation outlook” remaining in place.

• Fed fund futures now imply a 58.6% chance of a September cut, compared to 42% one week ago
• The Japanese yen was the weakest FX major, whilst USD and NZD were the strongest during a risk-on session
• The USD diverged from yields to track gold and notched up a second day of gains, albeit modestly
• Gold close to a 6-day high in line with my bias, with dips remaining favoured for a move to 2380
• USD/CAD reached the initial upside target around the weekly R1 pivot point and 1.37 handle, stopping just a few pips shy of the flag target at 1.3745
• NZD/USD looks set to test a break above 62c, yet AUD/USD closed flat for the day
• WTI crude oil snapped a 5-day losing streak to formed a bullish engulfing day and close above $74, after a false break of $73 the day prior
• Nikkei futures were up over 1% overnight, and with the Nasdaq at a record high a move above 39k for the Nikkei seems feasible today

Economic events (times in AEST)

• 11:30 – Australian trade balance, home loans
• 11:30 – BOJ member Nakamura speaks
• 19:00 – Eurozone retail sales, employment
• 20:00 – European parliamentary elections
• 21:30 – US Challenger job cuts
• 22:15 – ECB interest rate decision (25bp cut expected)
• 10:30 – US jobless claims, unit labour costs, trade balance
• 22:45 – ECB press conference
• 00:15 – ECB president Lagarde speaks

ASX 200 at a glance:

• A small bullish engulfing candle formed on the ASX 200 cash market on Wednesday
• 8 of the 11 ASX 200 sectors advanced on Wednesday, led by telecoms and healthcare
• ASX energy stocks were lower, but higher crude oil prices overnight should at least help support the sector today
• A strong close on Wall Street indices at record high helped SPI 200 futures rise overnight, which points to a positive open for the cash index today

ASX 200 futures (SPI) technical analysis:

The strong lead from Wall Street helped the ASX futures contract break firmly above 7800, after a solid rebound from the 100-day EMA last week. Bulls may now be eyeing a move to 7900, but soft GDP data could be a reason not to get carried away on the hopes of solid forward earnings. However, I suspect a bullish follow through today with appetite for risk clearly on the rise.

Take note that the ASX stalled at the weekly R1 pivot point and May 24^th high overnight, and a bearish divergence has formed on the RSI (4) on the 4-hour chart. Therefore, we on guard for a false break higher at today’s higher – which may even provide a quick counter trade for bears. Overall, the bias remains bullish above 7800 and for a move towards the 7875/73 zone, so bulls could either seek dip or periods of consolidation on lower timeframes for long setups. 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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