Today’s Key Market Drivers: 19th August 2019

Fed Minutes to be the first key driver this week.

The markets are desperate to know if the US Fed is going to drop rates at its next meeting in September and this week’s US Federal Reserve Minutes will give us a good indication if we can expect further interest rate cuts in the months ahead. Currently, the market is convinced the Fed will cut rates in September, which I disagree with and expect the Fed to stand firm and not adjust the cash rate lower.

Financial markets were in a risk-on mood Friday following better than expected Building data numbers and comments from Fed official Bullard who said the Treasury bond yield inversion “would have to be sustained over a period” to be taken as a bearish signal for the US economy. Bullard went on to say he was not yet ready to commit to reducing rates at the Fed’s next meeting which won’t be until September 17th and 18th. He also went on to say the markets sell-off was “a little bit overdone”.

The Jackson Hole US Fed Symposium is a Central Bankers yearly hang out.

Once a year major Central Bankers from around the world gather at Jackson Hole, Wyoming in what is seen as a once a year hang out for the world’s most powerful interest rate players. Unlike last year not one of this year’s speakers will be talking their economies up and threatening interest rate increases. All of the world’s leading Central Banks are looking to cut interest rates in a race to the bottom which threatens to bring on a global currency war.

We have not seen for some time a Central Bank deliberately manipulates its own currency (other than China) but this is something I expect to see in coming years. In the past, Central Banks such as the Bank of Japan, Swiss National Bank and even the Reserve Bank of Australia have used monetary policy adjustments to lower the value of their currency. If there is one country that I think could resort to currency manipulation it’s the USA which will continue to act as a safe haven through troubled economic times and whilst we are not at the tipping point yet I could see a scenario within 12 months the US Fed is forced to act.

Stocks will start the week higher.

The US stock market rebounded on Friday with safe-haven currencies closing the week on the back foot as traders shook off the mid-week meltdown and bought back into stocks leading into the weekend. Friday’s market rally showed traders were not hesitant to buying back stocks leading into a two-day break and I expect this week’s momentum to gather pace and markets to remain bullish.

Sure, there is plenty of uncertainty around, however, technically and fundamentally, I think we are ready for a week of gains rather than losses. What does this mean for currencies? The Yen could be the loser this week with all of its major rivals likely to rally against it if stock markets move back higher. The AUD and NZD would also likely gain if stocks continue to move back higher as there is a direct correlation between stocks up and the AUD and NZD up.

If US Fed Chairman signals there is little hope of a rate cut in September, I expect the US Dollar to perform strongly against the Yen as bond yields would likely rally pushing up demand for the US Dollar.

UK to soon leave the EU with or without a deal.

British PM Boris Johnson says the UK is going to leave the EU on October 31 with or without a deal. I expect the volatility will continue to remain robust in the weeks leading up to when the UK for the second time in a year is supposed to break ties with the European Union. Leaked official documents show that the UK could be forced to go without some food, fuel and medicine should it leave the EU without a deal. The article went on to say that a UK Brexit without a comprehensive trade deal would send shock waves through financial markets and cause lorries to be delayed at border crossings across Europe and would also cause large port delays.

The British Pound and Euro are under the pump with traders pricing in a higher likelihood both the ECB and BOE will take new policy steps to sure up their economies. The BOE has the opportunity to lower interest rates, however, the ECB does not have that luxury with the official cash rate already at zero. The ECB is expected to once again fire up the printing presses and artificially print money and distribute it across the Euro Area. How they do that is yet to be determined.

Hong Kong crisis could become a larger financial market issue if China sends troops over the border.

The Hong Kong crisis continues to gather momentum with the largest protest so far being held over the weekend. The independence of Hong Kong is the issue and if protests turn ugly and China takes action by sending troops over the border this seemingly “far away” issue will be a major financial market event. It may have been just an attempt at a show of force but China filling a football stadium that is just over the Hong Kong border with military equipment and troops last week didn’t help the situation.

This may turn out to be a non-event for financial markets but I will keep a close eye on any developments on the Chinese side.

No major Central Banks statements this week.

With no major Central Banks issuing statements this week and the Fed Minutes and Jackson Hole Symposium the major focus there is only a sprinkling of other economic data to get the market’s attention.

  • Wednesday: Canadian CPI
  • Thursday: Japanese CPI

It is one of the lightest weeks of economic data seen for some time and this is another reason why I think the market might use the clear economic data air to remain positive.

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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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