Today’s Key Market Drivers: 3rd January 2019
Does China have an Electromagnetic Railgun?
The Yen soared around 10.00am AEST today as a closely followed China defence blogger posted a picture on his Weibo account showing a picture of a Chinese warship with what looks like an Electromagnetic Railgun. The report is significant as US and China trade tensions remain high and if the Railgun is operational then it would mean China has beaten the USA to the party on Railgun technology.
The ABC reports that the USA has been pursuing Railgun technology since 2005 but is yet to launch any Railgun weapons on its warships. As I mentioned in a Live Train With Andrew Facebook stream earlier today if it is a Railgun the market will want China to confirm or deny what is perched on the bow of one of its warships. ABC Australia has had the story on its website for over an hour before CNBC and Bloomberg reported the story and when they did they said the Yen spike was a FLASH CRASH.
Financial markets were concerned late in 2018 that China and US growth may slow in 2019 and Wednesday’s release of a private China manufacturing survey showed contraction has occurred in the Chinese manufacturing sector for the first time in 19 months.
The moment the China manufacturing numbers were released on Wednesday traders were selling the Aussie and Kiwi Dollars along with emerging market currencies with the Yen being the major safe haven gainer as markets once again got nervous. The AUD v USD in the US trading session dipped below 0.70c for the first time in 35 months and if bear market conditions persist on US stock indexes and confirmation that US growth is slowing my longer-term prediction is the AUD v USD will reach its 2008 GFC lows of 0.62c in 2019. If China’s growth continues to slow without an injection of Chinese government stimulus Australia, in my opinion, may have a recession in the second half of this year or early 2020. Australia is so heavily reliant on China and if commodity prices dive lower on weaker demand Australia is going to feel the pinch. Sydney and Melbourne housing prices will continue to decline and if you are patient and in a position to enter the property and stock market in the coming 2 – 5 years with a long-term approach there are going to be some great value for money buys.
Learning to read price action is a vital part of trading and you must ensure you are not sucked into chasing price and swinging every time the market moves.
My expectation is the AUD will bounce in coming days and in my technical video report today I show you a Head and Shoulders set up I am eyeing on the EUR v AUD which has somewhat been spoiled by the spike on the Yen earlier in the day. I will stay within my circle of confidence and trade end of trend signals and refrain from getting involved in daily up and down volatility. Those of you that want to chase volatility and short-term moves then Laz will teach you some great technical setups in his weekly evening live training classes.
In other news.
Euro and Pound fall against the safe-haven US Dollar.
Whilst my longer-term view is the Euro and Pound may outperform the US Dollar in 2019 Wednesday saw both base currencies fall sharply against the greenback as the Euro and Pound were seen as guilty by association. What I mean by that is the Euro Area is the largest economic region in the world and China and the USA are Europe’s biggest trading partners. If both are slowing this will adversely impact the Euro Area’s growth prospects.
Brexit is continuing to weigh heavily on the Pound and we are now less than 90 days away from when the UK officially leaves the European Union. US Manufacturing data will be closely eyed today. US December Manufacturing and Trade Balance numbers are also due today and if the manufacturing data shows a slow down occurred in December then the risk-off sentiment is likely going to continue through the US trading session and would positively impact the safe haven assets such as Gold, Yen, US Dollar and Swiss Franc.
Global asset prices are going to fall in the short to medium term.
After extremely loose monetary policy from 2008 to 2014 global asset values soared. The US Federal Reserve’s gradual tightening of monetary policy over the past 3 years (raising interest rates) reached a short-term debt cycle tipping point in the second half of 2018. Money is no longer cheap to borrow or repay, cash and bonds are more attractive, debt levels are extremely high, investors have gorged themselves on borrowing money to buy stocks and property. History shows short-term debt cycles are approximately 10 years in length. It’s been 10 years since the GFC, interest rates were 0% in the USA from 2008 to 2014, rates are now 2.5% and rising and history shows what we typically experience for the 2 – 5 years is a period of contraction as the debt cycle changes. Asset values will fall, consumers will slow spending, businesses will slow that rates at which they borrow and hire and Central Banks in time will likely be forced to lower rates to stimulate growth. A new debt cycle of asset appreciation then begins as money is once again cheap to borrow and stock and property prices boom once again.
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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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