Today’s Key Market Drivers: 7th August 2019
Don’t be fooled. Nothing has changed.
US stock indexes rallied on Tuesday on nothing more than a dead cat bounce after Friday and Monday’s large sell-off. Nothing changed fundamentally on Tuesday and the US and China administrations are still just as far apart as they were 24 hours ago. In fact, it was the Chinese taking action on Tuesday announcing it was suspending the purchase of US agriculture products.
When markets pull back and correct themselves the distance in the price retracement is often very similar to previous pullbacks. This applies to currency and stock index markets.
My expectation is the current sell-off will continue and we will see new lows and any rally higher will likely be short-lived as markets will behave in the short to medium term based on the commentary from US and China officials.
Trump may increase all China tariffs to 25%.
This trade war is a long way from being resolved and in coming weeks it would not surprise me to see the Trump administration turn the heat up even more and increase tariffs on Chinese imports to 25%.
The current standoff between the US and China is going to remain the markets biggest fear in coming weeks and any escalation in tensions will see further declines in global stock markets and further rallies on the safe-haven currencies.
Kiwi Dollar spikes after strong jobs report.
The Kiwi Dollar spiked higher yesterday after a surprisingly better than expected unemployment report. The official unemployment rate dropped to an impressive 3.9% from 4.3% which if you ask me puts a question mark on how the Kiwi jobs numbers are derived. A drop in one month of half of one percent is something I have never seen before and frankly leaves me suspicious as to whether or not the number can be trusted. It appeared the market didn’t trust the number, spiking the NZD v USD up and then selling it off very quickly to now be trading below the pre jobs number level.
The focus today will be on the RBNZ statement that is due at midday AEST where the market is expecting the Central Bank to lower the official cash rate by 0.25% to 1.25%. The drop in the official cash rate, if it occurs, has already been priced into the Kiwi Dollar so unless the statement accompanying the rate decision is weaker than expected I would not expect a significant depreciation in the value of the Kiwi Dollar. In fact, if the RBNZ cut today and indicate they will sit and wait for a while before their next move the NZD would likely spike back higher.
The RBA is far too optimistic in its statement reporting.
The RBA kept interest rates on hold on Tuesday and once again painted a rosy picture of the Australian economy in future quarters. It did acknowledge the threat of a global economic downturn but what confuses me is why the RBA consistently delivers upbeat statements about the local economy that are rarely every backed up with facts that support their views. In my opinion, they’ve consistently gotten their inflation, wages and growth expectations wrong and evidence of this is their recent cut in the local interest rate, twice!
I am a pessimist when it comes to Government data numbers, they are inaccurate on many occasions and revised in future months to reflect the initial error. The fact is the market trades the numbers right or wrong.
China’s currency is a major focus this week.
After allowing its currency to fall below the key 7 Yuan to 1 US Dollar level on Monday the Chinese administration was comfortable with seeing its currency trading back above 7 on Tuesday calming fears it was going to consistently manipulate the currency lower to give it a trade advantage. This fact alone in my view was why stock markets rallied and the safe havens fell back lower. There was simply nothing else that pointed toward a reason for traders to be optimistic.
The US administration called China’s Monday move “currency manipulation” and they are right, the Chinese Government is a currency manipulator that maintains a consistent 2% bandwidth on its currency. This means it does not allow the Yuan to appreciate or depreciate more than 2% and effectively controls its price movement. That’s precisely currency manipulation and is one of the reasons why I have no interest in trading the Chinese Yuan.
Right now, is when a lot of novice traders dust their money. They fire off at the market trying to chase a price move and the market reverses and not only drains their account but drives them emotionally batty. If the market delivers a set up that meets your trading plan then go for it, take the trade, but don’t fire off at price action thinking you’ll pick up a few quick bucks during a high volatility period because the reality is you’ll more than likely lose money.
One of the reasons why I keep a trading journal and snapshot every trade is so I can remind myself throughout the year to remain patient. I’m a trading junkie and love to trade but I also know that if I don’t wait for my plan to present and I break the rules of engagement I will increase the probability of a drawdown.
Remember what I said in our recent one-day online Masterclass. The #1 thing you need to trade successfully is consistency in behaviour.
What you allow is what will continue.
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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