Today’s Key Market Drivers: 23rd August 2019
Japanese Inflation data won’t budge markets today.
The Japanese inflation rate remains at a stubbornly low 0.5% and today’s August CPI reading won’t surprise markets to the extent that the Bank of Japan will need to shift interest rates in coming months. The official interest rate is already in the negative at -0.1% and this is why so many Japanese citizens buy overseas assets in an attempt to make a positive return on investment. On today’s Money Exchange program I will share with you what happens to all this money that is outside Japan when the global economy contracts and you will understand very quickly why the Yen rallies in times of economic uncertainty.
Japan is a basket case financially, it has the fastest ageing population in the world, more people are dying than are being born so its population is shrinking and it has zero migration. It has virtually no inflation and ballooning debt levels. How is the third-largest economy in the world ever going to fix its mounting problems when it has no migration, negative population growth and no inflation? It just continues to drift into the abyss financially and is one reason why in my lifetime Japan has the potential to fall out of favour with the markets and sink the global economy.
Pound spikes on Brexit optimism.
The British Pound spiked higher on Thursday following the British PM Boris Johnson’s visit with German and French leaders this week. French President Emmanuel Macron said he was willing to hear alternatives to the Irish backstop and German Chancellor Angela Merkel expressed a desire to work with the UK right up until the deadline date to try and come up with a successful Brexit deal.
The reason why the Pound spiked sharply higher is simply that there is renewed optimism that a hard Brexit may be avoided. Previously the French President said that changes to the EU’s proposal could not be made but it appears he has softened his stance and alternatives are back on the negotiating table.
We have seen this sort of optimism before and any deal that Boris Johnson puts on the table for the EU to consider is sure to be challenged in the House of Commons.
Why the Fed won’t lower rates in September.
Donald Trump continued to try and bully the Fed into dropping interest rates with another Fed focused Tweet. Trump said “The Economy is doing really well. The Federal Reserve can easily make it Record Setting! The question is being asked, why are we paying much more in interest than Germany and certain other countries? Be early (for a change), not late. Let America win big, rather than just win!”
The main reason why the Fed won’t cut rates in September is that the US economy simply doesn’t need it, yet! It may need a number of cuts in 2020 if a recession does look like it’s on the way and holding back on further rate cuts now will give it more ammunition to help the economy if it needs it later.
Currently, Central Banks around the world are on a race to the bottom with interest rates with Europe already at 0%, the UK 0.5%, Japan -.1%, Australia 1% and the USA 2%. The Fed has some wiggle room on rates however other Central Banks do not.
Would you trust your trading plan with $5,000,000? How to know when your trading plan sucks.
Being able to answer the question is critically important if you are serious about trading larger volumes of money and making meaningful profits? The sad reality is the answer for most retail traders is “no” because their plan has too many losing trades in a row and they just keep taking small losses, top-up their account, more small losses until such a time they throw in the towel or they run out of money.
The solution is to have a plan that wins consistently and wins big and as a currency trader, in my opinion, you must be able to understand the market both technically and fundamentally to build a plan that has a high probability of success when traded correctly. When you do win you must win bigger than you are risking on every trade you enter.
When is Jerome Powell speaking in Wyoming?
The market is bracing itself for Jerome Powell’s opening address in Jackson Hole, Wyoming and they won’t have to wait much longer at the US Federal Reserve Chairman is due to speak first up Friday morning which is likely to be around midnight tonight AEST.
As I indicated earlier in the week, Powell is going to remind the market the Fed will do whatever it feels necessary but the US economy is doing well albeit inflation has slowed a little and the Fed is keeping a watchful eye on the key numbers. He does not want to spook consumers into thinking a recession might be on the way because Americans would then slow spending and a self-fulfilling recession would occur when there is no reason right now for any American to be immediately worried about a recession in the next 3 to 6 months.
The US Dollar has remained well supported this week (it did take a hit against the Pound Thursday) and my expectation is that Powell’s address in Jackson Hole will more than likely strengthen the greenback. The reason I say this is because I believe he will remind the market not to automatically expect a rate cut at the Fed in September and if the US Fed is not dropping rates this will likely increase demand for US Dollars.
Stay humble. You are not here to impress anyone other than yourself.
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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