Today’s Key Market Drivers: 22nd July 2019

US markets falter on the last trading day of the week.

Last week’s trading was all about the “pricing in” of future company earnings and trading activity on the back of comments from US Fed officials. I hate to sound like a broken record but the first 3 days of this week are likely going to resemble something similar.

US stock market ended the week lower with only 15% of the S&P 500 companies who are due to release earnings reporting their profits so far. According to CNBC another 25% will be released this week and what I am noting so far is that 2nd quarter earnings are mostly meeting or exceeding expectations, but it’s the comments about future quarterly earnings from CEO’s that has the market concerned.

If we look at history and how Central Banks usually adjust interest rates after a long period of being on hold rarely do they cut rates just once. A change in direction on rates from a Central Bank will usually mean more than one cut or one hike. In this case, the market expects a cut and I suspect we will see more than one cut before the end of the year when third-quarter company earnings begin to show signs of a wider economic slowdown. If America’s S&P 500 CEO’s are right, the US economy will need a 0.50% cut by Xmas and my expectation is that stock markets have the potential to fall through the traditional period of October to December.

The US Dollar and safe-haven currencies attracted some money on Friday as traders sold down riskier assets before the weekend. Geopolitical tensions are high after Iran ceased two Oil tankers in the Persian Gulf upsetting the UK who are now threatening retaliatory action unless their tanker is returned. Oil prices always rise when geopolitical tensions are high and whilst a military conflict is unlikely, I don’t think the market has heard the end of the current standoff between Iran, the US and its allies.

A lack of economic data will likely mean stocks lead the way.

When I look at this week’s economic calendar, I see nothing that will likely drive any impulsive moves until the back half of the week when we receive the European Central Banks July statement and second-quarter US GDP figures. Stocks will likely lead the way unless there is a new theme or an escalation of tensions in the Gulf.

Trump will no doubt be firing off a few Tweets a day and it is likely the market will trade off a couple of those if he decides to ramp up the rhetoric against Iran, China or his own US Federal Reserve. Trump wants a lower US Dollar and a higher stock market and nothing would please him more than two rate cuts from the Fed this year.

Will the European Central Bank announce a new stimulus package this week?

The market is pricing in a 60% chance the ECB announces a 0.10% rate cut this week up from 40% this time last week. I won’t attempt to predict a rate cut but I am sure that some form of stimulus is likely from the European Central Bank in coming months and this speculation has put a cap on any serious Euro rally.

The ECB stopped a multi-year long money printing/bond buying program in December 2018 and it appears quitting the financial support to European bond markets may have come a little too soon. The Euro Area was supposed to be ready to stand on its own two feet but if the ECB announces a new stimulus program this week the Euro is highly likely going to be sold off lower.

Boris could sink the Pound if he allows a no deal Brexit in October.

Boris Johnson continues to extend his lead and is highly likely going to be the next UK Prime Minister. The Pound fell again last week as traders continued to sell the Queen’s currency expecting the new PM could be serious when he says the UK is leaving the European Union with or without a deal in October if he’s PM.

Economists expect a full 2% of GDP would be wiped off the UK economy if it was to leave without a trade deal with European neighbours. The Bank of England would likely need to drop interest rates and this is putting downward pressure on the Pound.

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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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