Today’s Key Market Drivers: 13th August 2019
US Bond Yields fall causing further market declines on Monday.
Safe-haven currencies continued to benefit through Monday’s trading session as Friday’s stock market declines continued this time accelerated by falling US bond yields. Yield is the return on investment an investor receives for buying government bonds. When Central Banks such as the US Fed are expected to lower interest rates the yield on government bonds usually falls. It is a sign of weakness in an economy and if the economy is weakening then company earnings will likely weaken also and therefore traders are selling stocks now before the potentially weaker company earnings later. Financial markets are 100% correlated and it is like a domino effect, when one is falling another market is rising and vice-versa.
My expectation is we will see the lows that were created on Monday last week tested again as there appears to be nothing positive that will turn markets back around. Trump isn’t going to cut a deal with China any time soon, the UK is struggling to negotiate Brexit, China’s economy is slowing and the global economic outlook remains cloudy. There are other geopolitical events also hurting market sentiment at present with protests in Hong Kong shutting down the International Airport and Argentina’s sitting President performing poorly in local elections.
US Inflation data may turn heads today.
July’s monthly inflation gauge does have the potential today to send stocks even lower and continue to rally the safe-haven currencies. My thoughts are the CPI number may beat economists’ expectations and come in higher than expected. This would continue to put upward pressure on the US Dollar and downward pressure on the AUD, NZD, Chinese Yuan and other emerging market currencies. Each time the market gets bearish on the US economy new economic data numbers released suggest otherwise.
The market is expecting the US economy to weaken in coming quarters and this may indeed be the case, however, I don’t think the jobs numbers or economic activity data points towards a slowdown yet so I am expecting today’s CPI reading to meet or exceed the market’s expectations.
Money Exchange returns this Friday.
Do you remember my TV show Money Exchange on Sky News Business Channel? It was the world’s first and only live 30-minute dedicated currency show. I am bringing Money Exchange back! It’s returning this Friday Live on the Train with Andrew YouTube channel at 1.00pm AEST.
All the latest news, views, interviews and the exciting part is we will be able to do Live Q&A with viewers. The Live Show will instantly be loaded as a playable video on YouTube as soon as the show is finished. This means that those traders who cannot watch live can still enjoy watching the show later. The first new show is this Friday and I will send a Trade Time Alert 30 minutes before the show begins.
UK jobs numbers today could spell more trouble for the Pound.
The pound has been sinking recently under the weight of political and economic instability and today we will get the latest jobs numbers and weekly earnings data that have the potential if out of line with expectations, to send the pound back lower once again. The Queen’s currency was off its lows on Monday, however, the market still expects the Bank of England to lower the official cash rate in coming months and therefore any rally on the pound will likely be viewed as an opportunity to short the currency on any new economic data weakness.
Has economic sentiment fallen across the Euro Area?
Money has been flooding back into European banks recently as Asian Central Banks lower interest rates and European investors repatriate money back home. Today the market will get the results of the latest Euro Area Economic sentiment survey and it could be a trigger for traders who have been long on the Euro recently to sell and lock in profits.
The Euro Area is the largest economic region in the world and the European Central Bank is expected to lower the official interest rate further into the negative in coming months and inject more stimulus into the Euro Area economy. Therefore, whilst acknowledging the recent rally and understanding why I do expect the Euro longer term to weaken once the ECB’s stimulus program and lower interest rate is announced.
Bank of America sees a US recession a likely 1 in 3 chance.
The USA’s biggest bank just increased its expectation of a US recession in the coming 12 months saying they believe there is a 1 in 3 chance the US economy will slip back into negative quarters of economic growth. BOA’s statement helped weigh down bond yields and increased the expectation the US Fed may drop rates again in the coming months.
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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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