Today’s Key Market Drivers: 4th July 2019
Now that’s better.
Financial markets returned to their consistent correlations through the Wednesday US trading session with stock markets continuing their rally along with the Aussie and Kiwi Dollars and the safe haven currencies falling. This is the standard correlation that has held true in financial markets for decades and there was very clear and distinct reasons for today’s price action.
- More weak US economic data.
- A Trump tweet.
- Further pricing in of the next Fed move on interest rates.
Private ADP Jobs Reports misses estimates along with other US data.
We’ve discussed it all week and that was the likelihood of weaker than expected US economic data being the catalyst for continued weakness on the US Dollar. Wednesday saw the Private ADP jobs report miss estimates showing only 102,000 jobs created in June vs the 140,000 economists expected. This immediately put the US Dollar on the back foot and when Trade Balance, Factory Orders and a Services Sector reports all showed a contraction in activity it gave traders all the more reason to sell down long US Dollar positions in anticipation of lower interest rates at the Fed.
Trump says the US should join the currency manipulation game.
President Trump tweeted the following on Wednesday. “China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA. We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!”
Traders continue to price in a rate cut at the Fed in July.
Trump’s tweet added to the selling pressure on the Greenback as it is clear the US President wants to see a lower US Dollar and lower interest rates at the Fed. He will highly likely get his wish later this month when the Fed drops the official cash rate by 0.25%, the first rate cut in what could be a series of cuts in the next 12 months.
Fridays official US job figures will be the next big data number traders will use to sell down the US Dollar if it misses estimates. Economists are expecting 155,000 jobs to have been created in the month of June after only 90,000 were created in May. The US has consistently added over 150,000 jobs per month for the past 2 years and a weaker jobs market will only force the Fed to not only consider one rate cut in June but further rate cuts in coming months. A second month of weaker jobs numbers will be a first. In recent years when we’ve seen a weak US jobs number in one month, it has always been followed up by a strong month. Expect plenty of fireworks on Friday when the jobs number is released.
When a Central Bank has been on hold for so long as the RBA was when they adjusted rates in June, they rarely adjust them just once. The US Fed has been on hold for just six months after 3 years of lifting interest rates. One rate cut won’t likely get the job done and I expect the Fed will need to cut twice before the end of 2019 and this will only continue to support stocks. Provided the RBA doesn’t cut again or suggest it might, the AUD v USD will continue to be supported.
It’s one-way traffic for stocks and if you are not picking up on this fundamental fact then you MUST.
When Central Banks are lowering interest rates this is an environment for strong stock prices and when Central Banks are increasing interest rates this is the time to sell stocks. Being diversified in the stock market is something I enjoy as it helps build what I call a benchmark neutral trading strategy. What does that mean?
It means it virtually assures me over a 12-month period I won’t lose money because I will be diversified over stocks and FX markets. To learn how to build a benchmark neutral trading plan you need to have diversification in your trading and focus on learning how to understand the key fundamental drivers of major trends. Many traders miss this important point and I will continue to do my best to ensure you understand what the major themes are in financial markets and how the various sectors are correlated and how you can take advantage of them.
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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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