Today’s Key Market Drivers: 21st February 2019
US Fed Minutes confirm a rate hike still may be on the cards.
The US Fed committee, behind closed doors at its January meeting, discussed how strong the US economy and jobs market was giving some traders reason to switch their view from no rate hike in 2019 to the probability of at least one hike in the second half of the year. The Fed did acknowledge the downside risks to global growth particularly in China and Europe, which gave traders reason to short the AUD and NZD which were both lower post the Minutes.
Traders were expecting the Fed Minutes to show they discussed slowing the pace or stopping the unwinding of its trillion-dollar balance sheet. The US Fed from 2008 – 2016 printed hundreds of billions of US Dollars and bought assets that helped support US growth and the US Fed now wants to sell down its purchases, so when you hear the phrase US Fed balance sheet you will know what they are talking about. It’s a bit like your mum and dad bailing you out financially when you were a kid and now you’ve left home they want to sell the crap you left behind. In the case of the US Fed they’ve got over $1 Trillion in assets to sell.
The Federal Reserve Minutes were mostly seen as hawkish rather than bearish after January’s statement said the Central Bank would take a wait and see approach to when it will next raise rates. The greenback was higher post the Minutes and, in my opinion, there is no reason to think the Fed will change its plan and not hike in 2019 after they said they would in December 2018. I expect a rate hike in August or September and if the stock market in the USA continues to rise and the economic data continues to impress you can bring forward that rate hike to June or July.
Aussie Unemployment data due this morning.
The Aussie Dollar will be volatile this morning at 11.00am AEST when the latest jobs figures and the official unemployment rate is released. The current unemployment rate is 5% and the market is expecting approximately 15,000 jobs to have been created in the month of January. If the data shows a number either side of 5% or 15,000, traders will take the opportunity to buy up or sell off the local currency.
When giving consideration to what will move a currency higher or lower just think of it like this. If the data release is good news the likelihood is traders will buy the currency and if its bad news, they will sell it. If the data is wildly out of line with expectations the move will be more explosive.
Markets continue to await the outcome of US / China trade talks.
US and China trade officials continued their dialogue on Wednesday with no official announcement on any new trade deal. China’s news agency said this week that any new trade tariffs on China exports into the USA would be disastrous for the economy. It appears likely Donald Trump is going to extend the March 1st deadline that would trigger another $200 Billion of tariffs on China imports. If a deal can’t be done, current tariffs will rise from 10% to 25%. That’s the big number the China news agency is referring too. Currently, the trade tariffs are 10% but if 25% becomes the number it’s a huge jump higher and it would make many China products uncompetitive.
The probability is some common ground will be found although when it comes to President Trump, expect the unexpected.
ECB Minutes and US Durable Goods to be released today.
It’s the European Central Bank’s turn today to release their January Minutes which will be closely read but not likely to gain the same level of attention the US Fed Minutes did. If anything is out of line with the expectation the market will jump on the Euro but generally speaking the ECB Minutes don’t deviate too much from what the official statement said.
US Durable Goods will be important for traders to digest today also. Durable Goods data is essentially a retail sales number for goods that are big-ticket items that are supposed to last longer than 3 years. Things such as washers, dryers, furniture, electronics such as TV’s etc. If US consumers are buying higher ticket priced items it would be seen as another sign the economy is doing well and we could expect to potentially see higher inflation data down the track and the Fed would, therefore, need to raise rates.
Last week’s US Retail Sales number was a big miss so I am keen to see if the Durable Goods number also misses estimates. The market is expecting an increase of 1.8% for the December period and the data is set for release at 11.30pm AEDT Thursday night.
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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