Today’s Key Market Drivers: 25th February 2019

Aussie and Kiwi Dollars recover as US / China trade talks look positive.

The Aussie and Kiwi Dollars bounced back and stocks in the US continued higher after trade talks between US and China officials wrapped up for the week with optimism that a positive deal can be reached. Both the US and Chinese President met on Friday with markets clearly betting on a trade deal can be reached before March 1st when higher tariffs on China imports will kick in.

If anyone has a weak hand in these talks it’s the Chinese and any positive outcome for China will be a positive outcome for the Aussie and Kiwi economies. I am mindful that the market is increasingly pricing in a likely positive conclusion to the trade talks so I don’t expect any huge great rally on the Aussie or Kiwi Dollars. How high or how low they go will entirely depend on how the market views the deal that the US and China eventually announce.

From a technical perspective, stock markets in the US look stretched and the AUD and NZD look weak and any pull back on the stock market would see both currencies retreat once again.

Trump and Kim to meet in Vietnam this week.

There is a huge amount of economic data to be released this week and when you throw into the mix the US Fed Chairman speaking twice, China / US trade negotiations continuing and a visit by Trump to Vietnam to meet the North Korean leader one could expect to see plenty of volatility. The Trump / Kim meeting isn’t likely going to impact markets greatly unless there is something that is said or done the market is not expecting.

Traders are expecting another round of positive discussion between the leaders that will likely lead to North Korea disarming its nuclear weapons in exchange for trade sanctions being lifted that is killing the economy. Trump and Kim will no doubt pose for photographers and I am sure Donald Trump will let the world know what a truly wonderful friend he has in Kim.

If RBA rates go lower Australian stocks could outperform.

The local share market took off last week with the ASX 200 gaining handsomely as more and more investment banks and hedge funds price in their expectation that interest rates could go lower at the RBA in the next 9 months. Whilst I am very mindful of the deleveraging that could still occur on US stock markets the Aussie Share Market could be a stand out performer in the coming two years if Bill Evans at Westpac is right.

I have predicted that US stock markets will re-trace and come back to their pre-Xmas lows at some point and if this occurs then the ASX 200 would not be immune and would also fall…a great opportunity to buy more quality blue chip stock. My analysis and style of investing in stocks needs to be different to how I invest in FX so as to be diversified and whilst we don’t have time to go into the entire approach in today’s report I can simplify things by saying in the Foreign Exchange market it can pay to be an optimist and a pessimist when it comes to currency values but it generally does not pay over the long run to be a pessimist on quality blue chip companies which are the only stocks I am interested in buying.

The US Dow Jones Index rose by more than 150% between 2008 – 2016 as US interest rates remained at 0% and history shows stocks usually do very well when Central Banks lower interest rates. When rates are being lowered it is usually a phase in the credit cycle that house prices are falling and investors are cautious about investing in property. Interest on cash deposits is extremely low and therefore investors (most big ones) look for quality companies that are listed on the stock market that can pay a dividend and provide a higher return on investment. The increased buying pressure on high yielding dividend stocks often sends the stock price higher and provided the US financial system can steadily deleverage throughout 2019 without being spooked by another Fed rate hike, if interest rates do go lower at the RBA then quality blue-chip stocks on the ASX 200 will likely do very well.

Being a trader in the FX and stock market allows me to be diversified and when stocks fall sharply, I can take advantage of the currency correlations that occur and continue to make money. The benefit of such diversification ensures I have a benchmark neutral trading system that virtually assures me I won’t lose money over time, provided I execute the plan correctly. The upside will take care of itself over the years, it’s the downside that needs protecting at all times.

Every one of my ShareSmart portfolio entries is shared with all ShareSmart subscribers through the Trade Time app and you can purchase any of the stock that is added to the ShareSmart portfolio using your EightCap MT5 platform.

Buffett’s Berkshire Hathaway loses $4.3 Billion as Kraft Heinz share price plunges.

Warren Buffett’s Berkshire Hathaway is not used to seeing the companies it owns shares in lose half their value in less than 12 months. That is just what’s happened to the global food giant Kraft Heinz who’s share price has fallen in the past 12 months from above $65 to under $35 with 27% of the decline happening in last Friday’s trading session.

Kraft Heinz announced that it is lowering its dividend to 0.40c per share a significant drop from the 0.63c it paid out last time. The company’s share price was also hit hard by the announcement of a government investigation into its accounting practices, which would be the last thing Buffett would want to see. He’s huge on protecting reputations which he rightly says can take decades to build and less than 5 minutes to destroy.

Kraft Heinz problems in part seem to be stemming from consumers buying more healthier and fresh alternatives. Buffett’s love of the big fast food sugar brands such as McDonalds (he eats for breakfast daily), Coca Cola (which he says he drinks daily), Mars (who also owns the Snickers bar) Kraft Heinz, Wrigley’s gum, Dairy Queen (ice cream) and See’s Candy might need a re-think.

Did you know that online retailer Amazon bought the American supermarket giant Whole Foods who prides itself on healthy alternatives and loads of organic products? I bet you didn’t know Amazon also owns the Washington Post Newspaper.

Doubt is a dream killer. Carpe Diem. 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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