Today’s Key Market Drivers: 29th May 2019

US markets get the jitters.


US stock markets fell on Tuesday even after a far better than expected Consumer Confidence number early into the US trading session. US Consumers are still clearly feeling upbeat as the gauge for pessimist’s vs optimists hit a new high of 134.1. A reading below 100 means there are more pessimists than optimists so the 134.1 number, up from 129.0 the previous month tells me US consumers are not as concerned as economists and market commentators about how the trade war will impact the US economy in coming quarters.

The US 10 Year Treasury Yield which is usually a good guide to US Dollar demand fell to a new low of 2.26% a 19-month low. The bond market is continuing to price in its expectation of GDP being weaker in future quarters but that pricing in didn’t seem to impact the US Dollars value on Tuesday as it held firm in the short term.

Trump says the US is not ready to make a deal yet.


The US President was in Japan on Monday and said the US was not yet ready to do a deal with China and traders saw this as another reason why the US Fed may be forced to lower the cash rate in the second half of 2019. Trump recently increased tariffs on China from 10% to 25% but the US Fed Chairman Jerome Powell said recently “there’s no thought that changes in trade policy should have any effect on the current outlook”. Clearly, the market at this point disagrees and is pricing in a better than 50/50 chance there is a rate cut before the end of the year.

Whilst the US may not be ready to cut a deal with China the President did hint on Tuesday a new trade deal with Japan will likely be announced in the next couple of months. Japan in the third largest economy in the world and a new trade deal between the US and Japan would be seen as a positive. If announced before a trade deal with China it would be seen as a sly slap in the face and reminder to the Chinese who gets the US preferential treatment. Let’s face it, there is no love lost between the US and Chinese.

RBNZ Financial Stability Report could rock the Kiwi Dollar today.


Traders with Kiwi Dollar positions need to be mindful of latest RBNZ Financial Stability Report that is released at 9.00am AEST today and then followed up with a testimony before a Parliamentary Select Committee by the RBNZ Governor. If the report or his comments give traders any indication as to when the RBNZ will move rates investment banks and hedge funds will jump on the opportunity to buy up or sell off the Kiwi Dollar.

It is widely expected the next move from the RBNZ will be to lower the official cash rate with the market pricing in the likelihood of a rate cut in June or July.

Bank of Canada statement will be closely eyed tonight.


While you are curled up in bed tonight the BOC will be issuing its latest May policy statement and whilst traders don’t expect the BOC to adjust rates from the current 1.75% the market will be keen to read the statement to see if the BOC is turning more bearish as the year goes on.

Oil prices have slipped $10 a barrel over the past month and if demand reduces and prices continue to decline and may weigh on the Canadian Dollar. Canada is one of the worlds largest producers of Oil and Natural Gas and demand for both commodities have a significant impact on the Canadian economy. Just as Iron Ore and Coal have a significant impact on the Aussie economy, Oil and Gas is just as important to Canada.

If the US economy begins to slow however, shorting the USD v CAD is a popular trade for many investment banks and hedge funds.


Easy never pays well.

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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