Today’s Key Market Drivers: 3rd June 2019
US markets nosedive with consecutive losing days.
The US stock market hasn’t fallen this quickly over a series of days since 2011 and Friday was a huge day for traders to diversify into safe-haven assets. The S&P 500 fell 1.3% and the US 10 Year Treasury Yield which is usually a good barometer to US Dollar demand fell to 2.1%. So, what’s causing all the chaos?
The US President’s decision to lift trade tariffs on China, threatening European automakers with tariffs and now telling Mexico they can expect new tariffs unless they change their immigration policy has switched the market’s sentiment from “reasonably optimistic” to “cautiously pessimistic”.
The US Dollar is usually a safe haven asset when stocks retreat but Friday saw the US Dollar fall against all its major rivals as traders are continuing to price in the likelihood the Fed is forced to lower the official cash rate in the second half of 2019.
I don’t see the selling pressure easing any time soon.
Trump isn’t going to back down on China or Mexico and his leadership style is to bully, lie and intimidate and the fact is no high impacting economic news is going to sway the markets attention away from the big concern which is slowing US and global growth which will suffer if a trade war escalates any further.
Over the weekend according to CNBC the Mexican President hinted his country could tighten migration controls to defuse U.S. President Donald Trump’s threat to impose tariffs on Mexican goods. President Andres Manuel Lopez Obrador said. “Mexico could be ready to step up measures to contain migration in order to reach a deal with the United States.”
Trump has an election to win in 2020 and he’s going to hope like hell the US Fed drops rates in the second half of 2019 otherwise stocks will likely continue to slide. Americans will feel poorer and the positive economic sentiment he’s managed to build will disappear quickly. Americans are resilient but they are also quick to turn on their leaders when they are not performing and it’s my belief that Trump’s supporter base is made up of plenty of “turncoats” that would turn on him in a heartbeat if their back pockets were being impacted.
Think about it. What’s bigger than the China / US trade war at present? Nothing! And until it’s resolved or Trump changes his aggressive tone, financial markets will remain bearish. Trump is an egomaniac and his tone will change the minute the narrative he’s written isn’t going to plan and he’ll walk over anyone who tries to stand in his way.
The Aussie Dollar could rocket higher on Tuesday.
Whilst the market is overwhelmingly positioning itself for a rate cut at the RBA and a move lower on the AUD, we have not seen an official jobs number since Governor Lowe spoke recently and said that rates would go lower if the jobs market did not pick up.
It’s not a certainty the RBA will cut rates tomorrow and if they stay on hold again the Aussie Dollar would rally strongly particularly in light of the fact the US Dollar is beginning to slide back lower.
If you don’t control what you think, you can’t control what you do.
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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