Today’s Key Market Drivers: 23rd January 2019

Markets get nervous once again on global growth fears.

After two weeks of solid gains, it was the turn of the safe haven currencies to have their day in the sun as global stock markets turned south once again with the S&P 500 closing down 1.42% and the Dow Jones down 301 points or 1.22%. China’s slowing economy with 4th quarter annualised GDP of 6.6%, the slowest in 28 years, was enough to spook traders into a risk-off mood when US markets resumed on Tuesday. A report from the IMF warned of the potential for a global economic slowdown didn’t help those hoping for a continued rally on stock markets or a sag in the Yen. The International Monetary Fund has lowered its growth target for the global economy to 3.5% in 2019 that’s down from its previous estimate of 3.7%.

Asian markets today have followed Wall Street’s lead and opened lower with the Nikkei down 0.58% in early morning trade. With little in the way of high impacting economic data to reverse the trend, I would anticipate the risk-off trading sentiment will persist for the balance of the next few trading sessions.

New Zealand CPI beats economist’s estimates.

Economists expected fourth quarter inflation in New Zealand to be 0% however the data when released earlier this morning showed a small rise of 0.1% for the quarter or 1.9% for 2018 which was just a tick above economists’ expectations. The Kiwi Dollar was higher post the CPI numbers, however, if a risk-off mood persists on financial markets, I would suggest any rally may be seen as an opportunity for Hedge Funds and Investment Banks to reload their short positions.

The RBNZ said in 2018 that it expected low inflation to persist and did not anticipate a need to raise the official cash rate until 2020.

Reports suggest the US has cancelled a meeting with China trade officials.

Stock markets and the Aussie Dollar hit their session lows on Tuesday after a report surfaced that US Government officials had cancelled a meeting with China surrounding trade talks. Both countries are eager to resolve the dispute and late in the afternoon on Tuesday a White House spokesperson squashed the rumours saying the President had not cancelled any talks with China officials.

Whilst markets are nervous and a solid amount of deleveraging must still occur if a compromised trade deal between China and the US is announced it would be seen as a buy signal for stock markets and I would expect a rally would ensue. How long that rally lasts for I don’t know but certainly a calming of tensions between the two superpowers would be good for stocks in the short to medium term.

Euro continues to be well supported before important ECB meeting this week.

The Euro continues to remain well supported this week despite a German investment indicator suggesting investor confidence in Europe’s largest economy had slipped. The Euro’s move higher against the US Dollar is more about US Dollar weakness than Euro strength and Thursday traders will be keen to digest the first 2019 statement from the European Central Bank. The ECB quit its money printing program in December and traders are expecting the ECB will want to lift interest rates just as the US Fed, Bank of Canada, Bank of England and Bank of Sweden have done in the past 12 months.

The Pound also continued to improve against most of its major rivals following better than expected employment numbers. A pick up in the average weekly earnings report sent another subtle message to the Bank of England that once Brexit is sorted the UK is ready, willing and able to withstand higher interest rates. The BOE raised the official cash rate once in 2018 and said that once Brexit was resolved it would likely continue to normalise interest rates. This is the reason why I expect to see the Pound high by the end of 2019.

US Government shut down drags on.

As the US Government shut down drags on and 800,000 workers remain without pay a new vote to reopen the Government is likely to fail when the latest proposal is presented to the Senate this week. The shutdown until now has not had a significant impact on the US economy but it is now starting to ruffle some feathers with Delta Airlines this week saying its revenues are down $25 Million US Dollars as a direct result of the government shutdown. Travellers are avoiding air travel due to long lines at security screening checkpoints as the usual number of security attendants are told to stay at home without pay.

Financial leaders meet in Davos and remain concerned.

Some of the most powerful money managers and Central Bankers are meeting in Davos, Switzerland this week for their annual get together and it is clear many are concerned about what the next two years may have in store.

Ray Dalio, CEO and Founder of Bridgewater Capital the world’s largest Hedge Fund has continued to warn investors that the US economy is more likely than not to experience a recession in 2020 as interest rates have risen to a level where the short-term debt cycle will reverse and asset values must decline.

Billionaire Hedge Fund Manager Seth Klarman has also commented in a letter he sent to Warren Buffett along with his own investors warning of rising global tensions, mounting debt and political instability. According to CNBC Klarman told investors. “It can’t be business as usual amid constant protests, riots, shutdowns and escalating social tensions.” He went on to say. “The seeds of the next major financial crisis (or the one after that) may well be found in today’s sovereign debt levels.”

Your body can stand almost anything. It’s your mind that you need to convince. AB


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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