Today’s Key Market Drivers: 5th August 2019
Markets are flat out nervous.
The S&P 500 closed down 3.1% for the week and safe-haven currencies were dominating Thursday and Friday following Donald Trump’s announcement the US would be adding another 10% of tariffs to $300 billion worth of Chinese imports. Friday saw July’s official jobs number meet the market’s expectations coming in at 164,000 but was not strong enough to switch the markets focus away from the negative sentiment surrounding the US / China trade war. US wages growth also beat expectations rising 3.2% over the past 12 months. If wages growth is rising, inflation will also rise over time and this would stop the US Federal Reserve from dropping interest rates in coming quarters. However, the uncertainty surrounding the ongoing trade dispute between the US and China could also dampen trader’s appetite to buy the US Dollar as the Fed would be forced to lower the official cash rate if the world’s largest economy contracted.
My advice is to keep your eye on the economic data coming out of the US which at this point is still defying expectations and remains positive.
CNBC reported that a spokesperson for China remarked, “the world’s largest economy should give up its illusions, shoulder some responsibility and come back to the right track on resolving the trade war.” She went on to say, “China did not want a trade war with the U.S. but it was not afraid of fighting one.” China will no doubt retaliate with more of its own tariffs on US imports and we should expect an announcement early this week.
Uncertainty surrounded global growth before Trump’s new tariffs and Thursday’s announcement has hit business sentiment for 6 and will continue to drag on markets this week.
Reserve Bank of Australia to report its August statement on Tuesday.
Last week we saw the official Australia quarterly inflation report beat the markets estimates however it is unlikely the RBA monthly statement that is due for release at 2.30pm AEST will be hawkish and give traders a reason to buy back into the local currency. Whilst not in an official recession Australia is suffering an economic contraction that is highly likely going to get deeper. I expect the RBA will keep the official cash rate on hold at 1% this week however its statement will remain downbeat and it will be forced to drop the cash rate to 0.75% before Xmas. The trend lower on the AUD over coming months is likely going to continue.
Governor Lowe will also be testifying in Canberra later in the week however he is not likely to adjust his comments to what is in the official RBA statement on Tuesday.
What economic data will move markets this week?
Last week was extraordinarily busy with economic data and whilst this week is not as full there is two Central Bank reports due and China’s reaction to the US tariffs to come.
- Monday: US Manufacturing data.
- Tuesday: New Zealand Unemployment figures, RBA August statement.
- Wednesday: RBNZ August statement.
- Thursday: RBNZ boss speaks before parliament.
- Friday: RBA boss speaks before parliament, Japanese GDP, Chinese CPI, UK GDP, Canadian Unemployment data.
I expect markets to be volatile so please make risk management your #1 priority.
Just one high impacting US data number this week.
Financial markets will have just one high impacting US economic data to contend with this week and frankly, none of the other high impacting data out of Asia or Europe is likely going to move markets back higher and switch the sentiment from negative to positive. With the Fed suggesting last week that one rate cut was all traders should expect and then Trump going after China with more tariffs US stocks have been hit hard and the US Dollar has reacted strongly against emerging market currencies, in particular, the Aussie Dollar.
I am expecting more of the same selling pressure or at best a consolidation in price, but a strong rally back higher on stocks I think is unlikely. China will retaliate and investment banks and hedge funds are unlikely going to risk going long before China’s announcement.
How to build a winning trading plan in 5 simple steps. Step 3.
On Saturday I released Step 3 in 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 look out for the next video or my previous videos 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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