Today’s Key Market Drivers: 20th March 2019
The market is waiting for the US Fed.
Simply put financial markets are waiting for the Fed. Investment Banks and Hedge Funds are not likely going to take substantial trading positions in the 24 hours leading up to the Fed’s statement which is set for release at 5.00am AEDT Thursday morning. The market is expecting the Fed to announce that it will continue to remain “patient” when it comes to raising rates in 2019 which is Fed-speak for “we aren’t ruling out raising them either”.
It’s safe to assume the Fed won’t be raising rates until the second half of 2019 if they do at all and if other Central Banks are correct and we see slowing global growth and weaker inflation the probability is the Fed won’t raise rates at all. US Factory Orders for the month of January released on Tuesday showed a rise of 0.1% well below the estimated 0.3% and helped weigh on the Greenback. This comes on the back of a disaster February jobs report, weaker than expected January retail sales and US exports falling for the fourth straight month.
Personally, I think the Fed would still like to sneak in a rate hike in the second half of the year but would only do so if the economic data supported it. So how will the US Dollar react to the Fed’s statement tomorrow morning?
- If they strike a more dovish tone and warn about global and US growth and inflation slowing the US Dollar will likely weaken and stocks will likely rise.
- If they strike a more hawkish tone and remain upbeat about the economy and give traders reason to believe they haven’t taken the potential for a rate hike off the table the US Dollar will likely rise and stocks will likely fall.
Brexit negotiations are not impacting the UK workforce.
The latest unemployment and wages data out of the UK continues to show even in the shadow of Brexit uncertainty the workforce continues to hum along with the unemployment rate dropping from 4% to 3.9% and Average Weekly Earnings (YOY) rising by 3.4% which is higher than the estimated 3.2%. The positive employment and wages data and nothing new on the Brexit front gave traders no reason to sell of the Pound with it being broadly supported through the European and US trading sessions on Tuesday.
I continue to warn traders to be extremely careful trading the Pound in coming weeks.
UK Inflation data due today.
Inflation data is the #1 barometer a Central Bank will use when accessing if it needs to raise or lower interest rates. The latest UK inflation data is due today with leading economists expecting an annual inflation reading of 1.8%. The Bank of England last month indicated that it expected to see inflation soften in 2019 and it has no plans to raise the cash rate after earlier saying in 2018 that once the UK’s Brexit deal was done it would likely raise rates. If the inflation data today beats the estimated 1.8% the Pound will likely be bought up higher in the very short term.
I am bullish on the Pound longer term but my bullish sentiment is based on the UK leaving the European Union with a Brexit deal being done.
New Zealand GDP set for release early Thursday.
Next to inflation GDP (growth) is another key barometer a Central Bank will be eyeing when assessing the economy for monetary policy adjustments. All economic indicators feed into whether a country is growing or contracting and if an economy is growing we usually see upward pressure on inflation. Tomorrow morning at 8.45am AEDT we will find out how much the New Zealand economy grew in the fourth quarter of 2018 with the market anticipating 0.6% for the quarter and 2.5% for the year. If the data shows a GDP reading outside of the market’s estimates then traders will use that out of line with expectation reading to sell off or buy up the Kiwi Dollar. A better than expected reading will see traders buy the NZD and the opposite for a weaker than expected reading.
RBA Minutes subdue the Aussie.
After a rally on Monday, the Aussie Dollar put the brakes on yesterday following the release of the latest RBA monthly minutes. What the minutes showed was the RBA is concerned about the housing market in Australia and what was said in the official statement on the first Tuesday of March was perhaps not as bearish as the committee seemed to be behind closed doors.
Most leading economists in Australia are tipping a rate cut at the RBA before the end of 2019 with plenty of them predicting two cuts before Xmas. If that was to eventuate and the US Fed kept rates on hold for the balance of 2019 the AUD v USD would likely be closer to 0.60c than 0.70c.
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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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