Today’s Key Market Drivers: 1st July 2019
Xi and Trump agree to halt any new tariffs.
Saturday’s 80-minute G20 meeting between US President Trump and China President Xi has culminated with an agreement between both leaders that trade talks will begin again in coming days and they will refrain from imposing any new tariffs whilst negotiations continue.
Traders have been concerned the ongoing escalation in trade tariffs that began at the start of 2019 would threaten the global economy and Saturday’s outcome will be soothing news for world leaders. The US President also agreed to reverse the US Governments decision to ban US companies selling products to Chinese technology company Huawei.
How will the market react?
The comments from US and Chinese officials post the meeting between the two world leaders is generally what the market was expecting and therefore I would expect financial markets to react positively when trading begins on Monday. The general consensus is that a trade deal between the US and China will get done it’s just a question of how long it will take.
Trump commented to the press before leaving for South Korea. “We are right back on track.” According to CNBC, he went on to say that China would be buying large quantities of U.S. agricultural products following his meeting with Xi. “We’re holding on tariffs, and they’re going to buy farm product” Trump said.
Given the markets recent price action when good news surfaces re the China / US trade deal I would expect to see emerging market currencies continue to be supported and global stock indexes rally. There wasn’t anything said by either leader for the market to use as a reason to sell off on Monday.
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The recent Aussie Dollar rally could be short-lived with the RBA expected to cut rates again on Tuesday.
The Reserve Bank of Australia is expected to cut to official cash rate this Tuesday to a historical new low of 1%. The RBA last month cut the official cash rate from 1.5% for the first time in 2 ½ years and if they cut again on Tuesday, I would expect to see the Aussie Dollar move sharply lower in the short term.
Given trade negotiations between the US and China are back on track I expect the Aussie and Kiwi Dollars to be supported up to the RBA rate decision. I don’t’ think a rate cut at the RBA is fully priced into the Aussie Dollar so it would not surprise me to see the local currency fall by half a cent or more immediately following a rate cut. How low it goes will be dependent on how the market is continuing to view the US / China trade deal optimism and further weakness in US economic data.
US data will continue to be watched closely for further weakness.
The US Dollar has been on the defensive in the past two weeks following comments from the US Fed that an interest rate cut is a possibility in July after US economic data continued to soften along with the Fed’s inflation expectations. This week sees important manufacturing figures released early in the week and then on Friday we will get the official monthly job numbers. The market’s reaction to a weaker than expected jobs number on Friday would likely see the US Dollar fall and stocks rally.
Stock markets likely to rally following Trump and Xi meeting.
With major central banks continuing to move towards loosening monetary policy (dropping interest rates) traders are likely to continue to support stocks and rally indexes to new highs. If central banks are lowering interest rates company earnings are not likely to be impacted by higher borrowing costs and with interest rates lower consumer sentiment improves and thus spending activity picks up. Lower interest rates at central banks is a recipe for higher stock prices and lower prices for safe-haven assets such as bonds, gold and the Yen and Swiss Franc.
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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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