Today’s Key Market Drivers: 18th December 2018
“This is the pic on the home page of cnbc.com.”
During Sunday’s Pre-Market Prep Video, I said it was going to be a big week and it was likely going to be to the downside. That’s exactly what’s happened with another serious sell-off on US markets with the safe haven currencies the Yen and Swiss Franc gaining. The S&P 500 has now officially hit a new low for 2018 shedding another 2% and in my view, this is only the start of a bigger slide lower on global stock indexes. Refer to my daily video update as to where I think US stock markets will ultimately go. Did you watch the video I posted on Saturday that explained why the Yen and Swiss Franc are safe haven currencies? If you haven’t watched it click on the video below and when you are on my YouTube page make sure you subscribe to the channel so you don’t miss any new updated videos I post.
There was no “new news” to report on Monday, it was just ongoing fears US and global growth is slowing and when global growth slows the potential for recessions rise and the stock market falls. When this happens traditional safe haven currencies rise and emerging market currencies fall and this includes the Aussie and Kiwi Dollars. I can’t wait until the US Fed’s policy statement and press conference on Thursday because they are not going to be able to ignore the recent falls on financial markets and I am going to suggest to you that their statement will be tailor-made to ensure they do not add to the negative sentiment. I think they will raise rates this month but I think they will signal to the market from January 1, 2019, it will play a wait and see game and this will be another signal to the market that they are expecting an economic slowdown.
The Commodity & Futures Trading Commission reports that net long positions on the US Dollar have weakened recently. I have said a number of times I think the US Dollars run is done but it will continue to remain supported against emerging market currencies if stock markets continue to decline. Old habits die hard in financial markets and if stocks continue to correct sharply the US Dollar is going to attract some buyers. However, as 2019 emerges I think the US Dollar will weaken.
Both the AUD and NZD held up reasonably well through the US trading session on Monday as the US Dollar struggled to gain any traction with the Yen and Swiss Franc. The floor that is currently holding up the AUD v USD and NZD v USD won’t be able to support the selling pressure if Asian markets sell off sharply today, somethings going to give and if Tokyo and Chinese markets fall hard today the AUD and NZD are going to be dragged along for the ride. China’s President Xi Jinping is speaking today on the anniversary of 40 Years of China reforms and traders will be anxious to hear what he has to say. December’s RBA Monthly Minutes are due for release at 11.30am AEDT and may offer traders a reason to buy or sell the local currency in the very short term but as I’ve mentioned a few times with no high impacting news due until Wednesday, stock markets will likely lead the way. I expect a continued sell-off on Asian stocks today with the risk off sentiment to build as the week goes on.
In my Monday Facebook Live daily update (EVERYDAY at 7.30pm AEDT on the Train With Andrew Facebook page) I asked traders if they had any question, they would like to ask me. I said I would pick one with that person receiving an AB and Rosie 2019 Calendar. Juanita Pereira’s question is the one I have chosen, not only because she was one of the first to post a question but because it is relevant to what is going on right now. Juanita asked. “Can you please explain capitulation when it comes to the markets.” Juanita let’s use the current market conditions as an example. US Stock markets have been rising for 10 years since the GFC due to ultra-low interest rates set by the US Federal Reserve. People put their money into stocks as a potential return on investment because they got nothing for putting it in the bank. The US economy recovered and has been performing well over the course of the last 5 or 6 years, in fact, it has been a stand out economy. Interest rates have been steadily rising in the USA for the best part of 3 years but the stock market continued to go higher. We have recently seen a capitulation from many of those investors who have been holding stocks. They’ve been holding out and holding out waiting to see if stocks would go higher but in recent months US stock markets have started to fall, which makes investors nervous and eventually as new lows are created the buyers that were holding out eventually capitulate and scream “sell” and stock markets fall sharply. This usually occurs when new lows are created. A similar story happened to the AUD v USD when it pulled back from 1.10c in 2013. Interest rates in Australian began to fall and the buyers eventually capitulated and the AUD fell 15c over 24 months as new lows kept coming in.
We will again see volatility around these current lows but it is my view US stock markets are going much lower from here.
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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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