Today’s Key Market Drivers: 13th September 2019
Mario Draghi announces new stimulus for the Euro Area.
As expected, the European Central Bank announced a new round of stimulus and lowered its key benchmark interest rate into the negative. As I predicted the herd got slaughtered as many traders immediately saw the stimulus as an opportunity to get short on the Euro only to see it rally straight back in their faces causing a short squeeze. In Australia, a short squeeze might be more appropriately referred to as “grabbing one by the short and curlies”. Those traders who were caught short panicked as the price was quickly moving against them.
Once traders read the fine print of the new ECB quantitative easing program (a sexy term used by Central Banks instead of calling it artificial money printing) they realised it was not as deep as they expected. The ECB cut its interest rate by 0.1% to -0.5% short of the 0.2% cut the market expected. The ECB also capped the magic money printing program (quantitative easing) at 20 Billion Euro per month which was short of the 50 Billion the market expected.
I did not immediately make or lose any money from the ECB announcement, however, indirectly I will benefit as my stock portfolio continues to grow as global indexes including the ASX 200 return to their highs. Depending on today’s opening price of Fortescue Metals I will look to sell my stake in this great blue-chip stock. If you are a ShareSmart subscriber lookout for my alert today. Below is a snapshot of the trade showing the profit target only cents away.
US Inflation figures say the US economy does not need a rate cut.
If Thursday’s US inflation numbers are anything to go by the US Fed does not need to cut its interest rate next week when it meets for its monthly two-day meeting. The market is convinced the Fed is going to cut rates and Donald Trump is screaming from the top of the White House for rate cuts.
Thursday’s monthly inflation figures showed the economy did not lose steam over the past month with all the various inflation readings meeting market estimates. Whilst I don’t think they will cut interest rates in September I do think the US Dollar is headed lower between now and Xmas as I think they will move rates lower before Xmas.
Trump cuts China some slack in a surprise move.
In what was viewed as a concession Donald Trump announced on Wednesday evening that he was suspending the introduction of new tariffs on China imports for another two weeks. The US Treasury Secretary said that Trump could strike a deal with China at any time but wanted to make sure the deal was a good deal for American workers. Any positive news on the US / China trade war is going to be good news for the AUD and ASX 200.
Stock markets are loving the thought of lower interest rates.
The Dow Jones and S&P 500 are less than half a percent away from their all-time highs as stock market traders cheer lower interest rates and the potential for stimulus packages in 2020. It isn’t just the blue-chip stocks that are rallying strongly, it’s a wider group of stocks across the S&P 500 and Russell 2000 that are rising and this is a sign that new highs will likely be made and JP Morgan’s prediction last month of a strong rally in September is looking good.
You should not ignore what major US investment banks say. In August JP Morgan made a strong prediction the stock market would rally strongly in September and make all time new highs in the first quarter of 2020. They don’t like to be wrong and even though many people don’t trust what investment banks do, and they are wrong from time to time, I do take note of their analysis and what they say. I listen to them because I want to use it to my advantage.
I have recently bought 4 stocks since August 1st and my expectation is these stocks will add around 7% – 8% return to my overall 2019/20 return. You may not think this is much, but having a diversified approach across FX and stocks gives me a benchmark neutral trading plan. What does that mean? It means I am very unlikely to lose money over a 12-month period so long as I follow my plan correctly. Sure, my goal is to make money, meaningful returns, but my first priority is to ensure I don’t lose money. The upside will take care of itself provided I behave correctly. Maintain the correct trading behaviour and I will win. Mess with the trading behaviour and I will lose. It’s that simple.
In other news.
The USA’s budget deficit for this year just hit $1 Trillion. That simply means the US economy has spent $1 trillion dollars more than it has earned. The difference between revenue and expenses in August alone was $214 billion. Is this significant? Yes, but it won’t impact financial markets until China stops buying US bonds and the market does not trust the USA to pay interest to bondholders. That is not likely to happen in our lifetime in my view.
Today sees the release of US August Retail Sales data which will be closely watched to see if US consumers are spending less. Recession calls and fears that were screaming across headlines less than a month ago have disappeared for now. There is a new theme in financial markets and its all got to do with higher stocks and lower interest rates at Central Banks.
What happens if you follow a herd around the paddock? They get slaughtered!
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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