Today’s Key Market Drivers: 29th August 2019
Pound falls after Brexit Blindside.
British PM Boris Johnson may have pulled off an incredible Brexit blindside move that has the potential to see him negotiate a new EU deal or send the UK crashing out of the European Union with the UK parliament being left with little time to stop either scenario.
On Wednesday the UK leader visited the Queen and asked her to push back the first sitting day of parliament to October 14th instead of mid-September. Johnson’s ambitious move gives him another month of clear air and substantially reduces the time (by about a month) the UK parliament could reject any new EU proposal. With the UK parliament now coming back on the 14th October and the Brexit deadline being October 31st the UK parliament will have just two weeks instead of 6 to argue the toss over any deal Johnson puts up. Keep in mind the UK Prime Minister is adamant the UK will leave the EU on October 31st with or without a deal.
The Pound initially fell at the start of the European trading session when the news broke but regained approximately half of its losses by the time the US trading session closed.
Dow Jones rallies but the Yen’s resilience says recession fears remain.
The US stock market rallied on Wednesday but the worrying recession signs were still flashing as bond yield inversions worsened and safe-haven currencies were not sold as stocks rose. When we see a move higher on the Dow Jones by 250 points, we would normally see the safe-haven currencies weaken but that did not happen as it normally would which tells me the top end of town is still nervous and a sell-off back lower is potentially still on the cards.
Whilst the yield curve inversion signals a recession is likely in the next 18 months the market’s biggest concern still remains the US / China trade relations. Since Donald Trump tried to calm markets on Monday telling investors the Chinese had called to restart negotiations (they hadn’t) both the US and Chinese administrations have been quiet. With no commentary from either side stock indexes have been range-bound, one day down, the next day up without any follow-through moves like we saw last week.
Aussie & Kiwi Dollars drift lower threatening to break to new lows.
The Aussie and Kiwi Dollars have been drifting lower this week with both base currencies looking like they want to break to new lows against the Greenback.
Today’s Private Capital Expenditure numbers will give traders a good guide as to what big business is doing with its money. The PCE number is forward-looking and is a survey conducted of big businesses asking what they have recently spent or plan to spend on new capital.
With the economy weakening and interest rates falling in 2019 the expectation would be that companies may reduce capital purchases. A weaker than expected PCE number today would likely see the AUD v USD heading back towards the recent low of 0.67. The data is set for release at 11.30am AEST.
German unemployment and Euro Zone Inflation data will likely move the Euro today.
The Euro has also been on the skids this week with traders pricing in the expectation of further stimulus at the ECB in coming months. Today’s German Unemployment numbers are not likely to move the Euro much, however, the German Inflation figure could. The market is expecting the Euro Area’s largest economy to have inflation of 1.5% annualised so anything less than this would see traders sell down the Euro currency in anticipation of a weaker Euro Area inflation figure next month.
Inflation is the most important barometer a Central Bank watches to determine if they are going to shift interest rates higher or lower.
Purpose is an incredible alarm clock. Do you know your purpose?
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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