Today’s Key Market Drivers: 10th July 2019

Stocks stage a late afternoon rally before Powell’s testimony on Wednesday.


US stock indexes moved back higher late on Tuesday afternoon less than 24 hours before US Federal Reserve Chairman Jerome Powell is due to testify before a Financial Services Panel in Washington DC. The market is anxiously waiting for Powell’s comments as it is widely tipped, he will finally put to bed if the Fed does indeed plan to cut the official cash rate on July 31st. A cut in the official interest rate would be the first official cut in close to 10 years following 6 years of 0% interest rates after the GFC and then a tightening cycle from 0% to 2.5% over the past 4 years.

To give you an example of how important interest rates are to currency market values the AUD v USD was 1.1076 in July 2011 when the official cash rate at the RBA was 4.75% and the official cash rate at the US Fed was 0%. Fast forward to 2019 and the official cash rate at the US Fed is now 2.5% and the official interest rate at the RBA is 1%. The value of the AUD v USD has slid 42 cents in the past 8 years as US interest rates have risen the Aussie interest rates have fallen.

If you want to know where currency values will likely be in 6 to 12 months from now, focus on understanding the probable outcome of interest rates at Central Banks around the world because investment banks and hedge funds are going to be trading what is called “interest rate differentials”. Selling currencies in anticipation of lower interest rates and buying currencies that have the potential for higher interest rates. That’s as simple as it gets when it comes to major currency trends over a long period of time.

If Jerome Powell indicates tomorrow the Fed is likely to lower the official cash rate from 2.5% on July 31st the US Dollar is highly likely going to fall in value.

US Federal Reserve Minutes also set for release.


Wednesday will also see the release of the latest US Federal Reserve monthly minutes which will give economists, traders and commentators an insight into what the Fed was speaking about behind closed doors. If a future rate cut is on the cards the probability is the monthly minutes will indicate this.

It is highly unlikely Jerome Powell will testify in front of a Financial Services Panel and contradict what the minutes will say. The monthly minutes are due to be released 4 hours after Powell begins his testimony.

Warning! Why stocks markets could fall and the US Dollar rally on a Fed rate cut this month.


The market has 100% priced in a rate cut at the Fed and I do think this week will see Jerome Powell confirm a rate cut is likely. Whilst I am of the view stocks will continue to rally under a lower interest rate environment and the US Dollar resume its downtrend there is one caveat to this prediction you must understand.

If the Fed cuts rates on July 31st but signals to the market that further rate cuts in 2019 and 2020 are unlikely at this stage or the potential for further cuts are not as deep as the market expects (the market expects a full 1% cut by the end of 2020) then traders would likely sell off stocks in the short term and rally the US Dollar even if a 0.25% cut is the outcome on July 31st.

Powell’s comments tomorrow coupled together with the Fed’s monthly minutes 4 hours later have the potential to move markets significantly and you need to be very mindful of this.

Other important news to watch out for.


RBNZ Governor Orr is scheduled to speak on Wednesday and traders will be keen to hear if he’s willing to give any forward guidance on interest rates. Chinese Inflation data is set for release at 11.30am AEST and if out of line with expectation has the potential to move the Aussie Dollar as it is seen as a proxy for China. A slew of UK economic data is set for release which includes monthly GDP, Industrial and Manufacturing production numbers plus Construction Output and Trade Balance figures. There have been some commentators and economists recently suggesting the Bank of England may now need to cut the official cash rate and this is dragging on the Pound.

The importance of self-discipline.


Self- Discipline in trading is forcing yourself to sit and wait for the correct set up in spite of seeing price move higher and lower. You must do this time and time again until it becomes a habit. Most people can’t do it and they succumb to temptation. You must remain steadfastly self- disciplined and it is my strong belief that you simply cannot pull self-discipline out of your pocket when you feel like it. You are either a self-disciplined person or you are not. Self-Discipline is a practised skill that builds incredible willpower and self-confidence over time.

Discipline alone is not a practised skill because discipline alone can be meted out by someone else, such as a coach, a personal trainer or teacher. The very best of the best in any field have a high degree of self- discipline and do not require someone to remind them of what they need to do. They simply do it. I get out of bed every day 30 minutes before the sun rises not because I want to see the sunrise, I do it because it takes self-discipline to do it 496 days in a row (I will make 10,000), it takes commitment and it builds willpower and self-confidence over time not to mention it gives me an additional 8 hours on average a week to get what needs to get done, done.

Success only occurs for the self-disciplined. If you ever find yourself consistently needing someone to bust your ass to get stuff done then you are only destined for below average.


Become self-disciplined and your life will change in a massive way, I guarantee it.

AB

 

About the Author: Andrew Barnett

Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).

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