Today’s Key Market Drivers: 30th August 2019
The Chinese say they are keen to progress constructive trade talks.
The Chinese announced on Thursday they are willing to negotiate with a “calm” attitude and would not retaliate any further with more tariffs on US imports into China. Trump saw just how severe the market’s reaction was last Friday when he told US companies to bring manufacturing back home after China increased tariffs on US imports. Trump’s been quiet all week about China and trade and this is because he wants a higher stock market and saw how nervous the market can get. He knows better than anyone a higher stock market makes American’s feel richer, consumer and business sentiment remains high and the last thing he needs right now is a crashing stock market on fears of an all-out trade conflict with China.
After the soothing Chinese comments stock indexes rallied strongly with the S&P 500 up 1.27% and the Dow Jones closing back above its 200 EMA on the daily chart. Safe haven currencies were sold with the Yen being arguably the biggest loser as traders cautiously bought back into riskier assets.
Aussie & Kiwi Dollars fail to fire after Chinese comments.
The Chinese announced that they were keen to calmly begin trade talks again with the US failed to fire the Aussie or Kiwi Dollar higher against the greenback. The Aussie Dollar is seen as a proxy for China and I expected to see more money come for the local currency given the strong positive language from the Chinese.
Private Capital Expenditure numbers that were released on Thursday missed estimates by a full 1% and this dragged on the local currency all through the Asian trading session. Big business investment in Capital Expenditure fell into the red with a reading of -.5% vs the +.5% the market was expecting. It is another sign the Australian economy is continuing to struggle when large miners and big corporations investing less and laying off workers. Virgin Australia announced on Wednesday that it would be retrenching 750 staff from its Australian operations after posting its 7th consecutive annual loss this time $349.1 million dollars. Is Virgin going to do an Ansett in coming years?
Euro falls following weaker than expected German Inflation data.
The Euro continued its trend lower Thursday following weaker than expected German inflation data. The official unemployment rate stayed at 5% in Germany, however, August inflation numbers disappointed with a drop of -0.2% vs the +0.5% the previous month. The market is pricing in the fact the European Central Bank will highly likely introduce new stimulus measures in coming months and depending on how deep the rate cuts and money printing program is will determine how low the Euro goes. Lower interest rates and artificial money printing is a recipe for a currency to go lower.
As soon as the ECB announced negative interest rates and artificial money printing Donald Trump is going to go ballistic at the US Fed and demand they lower rates also. He’s already upset the Fed has not lowered rates more than 0.25% and it would not surprise me to see Trump try and devalue the US Dollar somehow as other Central Banks lower rates and weaken their currencies.
Stronger than expected US data numbers back the Fed’s stance to leave rates on hold.
The latest second-quarter US GDP and Personal Consumption Expenditure numbers were released on Thursday with growth in the 2nd quarter meeting the markets estimates and personal consumption coming in higher once again. All this talk about a US recession certainly doesn’t seem to be impacting US consumers although the GDP number was backwards-looking and would not have taken into account the past months economic conditions.
The market is still expecting the US Federal Reserve to drop the official cash rate in September even though the economic data numbers do not support a case for a cut. Even the US Fed themselves have said their recent cut at the end of July should not be taken as a sign more cuts are immediately on the way. US bond yields have sunk in recent weeks as traders have diversified money into fixed income and I think they will be severely disappointed in September when the Fed doesn’t cut rates. The US Dollar would likely rally quickly if the Fed kept rates on hold.
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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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