Today’s Key Market Drivers: 2nd August 2019
Trump rattles markets. Says he’s going to add 10% tariffs to $300 billion worth of Chinese imports into the USA.
It is plainly obvious the trade talks between the US and China have once again broken down and Donald Trump has wasted no time and has gone on the attack announcing on Thursday the US would be adding 10% tariffs on another $300 billion worth of Chinese imports into the USA.
Negotiations between the US and China have been happening in Shanghai this week whilst back at home billion-dollar hedge fund managers such as Kyle Bass and others have been predicting that China will never come to the party on intellectual property rights and a trade deal with the US will be nearly impossible to pull off.
Consumer and business sentiment may suffer.
The US Fed dropped the official cash rate by 0.25% this week and gave no indication that more rate cuts are likely. However, if the trade war with China continues to intensify the probability rises that US business and consumer confidence will be hit and the Fed may be forced to pull the trigger on another rate cut.
US company earnings have been holding up extremely well in the first two quarters of 2019 however the concern will be that companies with significant exposure to China will be negatively impacted and a broader knock-on effect will shimmer across the country dragging down business and consumer confidence.
CNBC reports this morning. “Trump’s move means that all Chinese goods entering the U.S. will be subject to some sort of duties. While the actual price tag of the latest action is technically just $30 billion, or about 0.14 percentage points of GDP, the psychological damage that could be inflicted comes at an inopportune time.”
Aussie Dollar sinks to a new 10 year low.
The RBA will be forced to cut rates again in the coming months. The AUD v USD closed the Thursday trading session at 0.6801 marking a new 10 year low not seen since 2009 during the height of the Global Financial Crisis. Australia’s exposure to China is the reason why traders took to the AUD and sold it down so heavily moments after Donald Trump ramped up his trade war with China. Yesterday’s better than expected inflation figures boosted the local currency but those gains have been very short-lived.
Any increase in the tensions between the USA and China is only going to negatively impact the Aussie Dollar as Australia is seen as a proxy for China being Australia’s largest trading partner and having such an influence on the Australian economy. The US has the upper hand in this trade war and whilst China will retaliate with its own trade tariffs the US simply wields a bigger stick and as trade tensions escalate the AUD will suffer further
With the Australian economy already slowing and a negative wealth effect in play as a result of a contraction in property prices it is my expectation that more rate cuts from the RBA will be needed in the coming six months. It is conceivable that the RBA’s official cash rate could be 0% by this time next year.
Get ready for China to retaliate.
Financial markets will brace themselves today and over the weekend for China to announce how they intend to retaliate in the wake of Donald Trump’s latest tariff increases.
If China decides to impose more tariffs on US imports and announce this over the weekend, I would expect to see some sizeable gaps on financial markets on Monday and therefore I urge you to look after your risk management and consider this important fact. If a market gaps past your stop loss you will be filled at the first available price and this could be a significant distance from your desired stop loss level and therefore increasing your loss.
Risk management is your only salvation as a trader and should be your #1 #2 and #3 priority. Traders tend to only focus on the upside and do not build their trading plan around managing the downside risk exposure.
The Bank of England cuts UK growth forecast for the next 2 years.
It was not surprising to see the BOE cut its growth forecast for the UK over the next 2 years when it delivered its August policy statement on Thursday. The BOE expects the UK to only grow at 1.3% vs the 1.5% previously estimated. Following months of political and economic instability which has resulted in another British Prime Minister the BOE also warned the Pound could be hit hard if the UK leaves the EU without a trade deal.
The Central Banks growth forecasts assume the UK leaves the EU with a trade deal and right now it is looking increasing unlikely Boris Johnson will be able to pull off a trade deal with the EU and at the same time get his parliamentary colleagues to agree to it.
The BOE also warned that trade tensions between the US and China also threaten global growth with the BOE’s August statement released before Donald Trump announced he was again increasing tariffs on China.
How to build a winning trading plan in 5 simple steps. Step 2.
Yesterday I released Step 2 on how to build a winning trading plan. If you have not yet had the opportunity to watch it please click on the video below and lookout for the next video on my Train With Andrew YouTube channel.
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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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