Today’s Key Market Drivers: 1st February 2019

Risk on sentiment sees risk currencies rally.

The US Fed’s comments on Thursday morning saying they would remain patient about further interest rate increases has seen the S&P 500 close out January with its strongest gains since 1987. Currencies that benefit when stocks are rising such as the AUD and NZD have continued to be well supported.

The US Dollar continued its slide on Thursday as traders unwound long US Dollar positions expecting the Fed not to raise interest rates until the second half of 2019 at the earliest and from a technical perspective the charts are also supporting the potential for further declines in the greenback.

Traders are now pricing in the likelihood of only one interest rate increase at the Fed in 2019 rather than the two that was expected following the Fed’s December statement and economic outlook.

The markets fog may be clearing.

There has been some market fog in January around a number of important issues such as Brexit, US / China trade tensions and the US Fed and what it will do in future months. The fog I believe is starting to lift with the Fed telling the market what it wanted to hear on Wednesday and Trump Tweeting the US and China are getting closer to trade deals that both countries can live with. Brexit whilst dragging it heals does appear to be also inching closer to a conclusion.

December saw stock markets plummet after the Fed raised rates and traders were spooked the US economy is about to enter a recession in 2020. But more than 70% of company earnings released by US companies listed in the S&P 500 beat 4th quarter earnings and jobs growth continues to remain strong. Factually the US is a long way from a recession but I do expect a continuation of asset deleveraging in the coming 18 months and urge you to be extremely careful if you are thinking about taking on debt to buy an investment property or stocks. I still believe the lows created in December will be tested again.

Canadian Dollar continues to rally as oil prices surge 18% in January.

The Canadian Dollar has continued to benefit from a weaker greenback and oil prices spiking 18% in January. Just like Australia that is heavily reliant on Iron Ore and Coal, Canada is equally reliant on Oil which was falling in value in late 2018 as fears of a global economic slowdown and trade tension between the US and China ramped up. If a trade deal can be reached between the US and China and the Fed keeps rates on hold for longer the probability is traders will price in their expectations the Bank of Canada will raise rates in coming months which will put upward pressure on the CAD.

Official US jobs figures will be closely eyed today.

A private ADP US jobs report released on Wednesday suggested the US economy added more than 200,000 jobs in the private sector in January and today we will see the release of the official US Labor Department numbers which economists are expecting to show only 165,000 jobs created. A stronger than expected jobs number will likely be positive for US stock markets as it will confirm the US economy has not started to slow as many predicted it would.

This monthly jobs number can have a significant impact on prices in a short period of time and if anyone is trading small times frames such as 5 min or 15-minute chart you must be extremely careful and, in my opinion, out of the market when the Non-Farm Payrolls number is released. The currency and stock index market can whipsaw back and forth violently post the data number.

Traders to eye Euro Area Inflation figures on Friday.

Inflation rising or falling is a direct result of whether or not an economy is expanding or contracting and is a key barometer that Central Banks use to determine when they will raise or lower interest rates. The ECB currently has the official interest rate for the Euro Area at 0% and would love to begin to raise it this year but inflation remains persistently low across Europe at around 1.4%.

If the Euro is to rise over the course of 2019 two things need to occur.

  1. Euro Area inflation needs to rise which current economic indicators suggest is unlikely in the coming months.
  2. The US Fed needs to keep its interest rate on hold for all of 2019 and the Euro Area economic indicators improve slightly.

The mind always fails first, not the body. 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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