Today’s Key Market Drivers: 7th January 2019

US December jobs figures smash market estimates.

The market expected the US economy to have begun slowing in late 2018 and that is why expectations were low for the December jobs figure at 177,000. The official Labor Department figures when released on Friday showed 312,000 jobs were created in the month of December smashing economists estimates and briefly sending the US Dollar higher. Those gains were erased within hours after Jerome Powell’s comments on the pace at which the Fed may tighten interest rates in 2019.

US Fed Chief Jerome Powell gives stock markets something to cheer about in the short term.

Speaking at the American Economic Association on Friday Jerome Powell gave stock markets something to cheer about when he said that the Fed “will be patient as we watch to see how the economy evolves”. Powell also said there is no pre-set path for policy. The US Dollar was weaker post-Powell’s comments due to the fact that if the Fed pauses raising rates the interest rate differential between US rates and other countries such as Australia and New Zealand will not continue to widen. Stock markets have been eager to here the Fed would take a wait and see approach to further interest rate rises in 2019 after the Fed’s December statement confirmed they are aiming for two more rate hikes in 2019. On the release of the December statement, the Fed did not mention a “patient approach” which spooked stock markets and subsequently fell into bear market territory prior to Xmas. Traders may have cheered Powell’s comments on Friday sending the Dow Jones 3.29% and S&P 500 3.43% higher but rallies on stock markets are going to be capped in my view. The Fed cannot afford for the amount of debt that has been accumulated over the past 10 years with low-interest rates to continue and if stock markets continue to rise in coming weeks the Fed is going to raise rates in early 2019.

The end of Free money.

Traders and investors would be naive to think Friday’s 750 rally on US stock markets is a sign that we have hit the lows and markets are going back higher. With the US Fed tightening policy in 2018 and continuing to tighten in 2019 we have reached the end of the “Free money” era. With global interest rates so low since the GFC investors have gorged themselves on what has effectively been “Free money”. Due the rise in asset values and a recovery in the global economy, interest rates have to rise and Central Banks around the world cannot afford for the current level of debt to continue to rise. If they do not raise interest rates the bubble (we already have one in my view) will only get bigger and when it bursts we will see a financial crisis. As interest rates have been rising steadily in the USA and globally asset values have been falling which include stock markets and there is a long way to go before this new debt cycle of higher interest rates unravels throughout the world. The probability in my view is Australia will have a recession in the coming 2 years and financial assets such as house prices and the Aussie Dollar will continue to go lower over the longer term.

In Other News.

Markets expect the Bank of Canada to raise rates this week.

I mentioned in last week’s technical videos that the USD v CAD has turned bearish and has broken the long and sustained uptrend that was in place for most of 2018. The Canadian Dollar has the potential to extend its recent gains against the greenback this week when the Bank of Canada meets for the first time in 2019. Traders expect the BOC to raise the official cash rate from 1.75% to 2.00% and if they do the Canadian Dollar is going to continue to strengthen against all its rivals. The BOC is another Central Bank that is eager to normalise interest rates and I suspect the Canadian Dollar could be a stand out performer in 2019 back by rising interest rates at the local Central Bank. The recent sharp fall in Oil prices may give the BOC reason to pause in January but ultimately the BOC will go higher in 2019.

Subject for this week’s Train With Andrew Podcast.

My first Train With Andrew Podcast this week will be focused on breaking down Ray Dalio and Stan Druckenmiller’s recent end of 2018 comments about financial markets. Both gentlemen are regarded as two of the world most influential and successful traders and money managers and after I shared their videos and comments with investors over the Xmas break, I have had a number of you ask “what did he mean by this and that?” Look out for the Podcast link within the Trade Time App mid this week.

Markets to begin on the front foot.

Financial markets will begin the week in a positive mood after such a strong rally on US stock markets. There is no high impacting news scheduled for the Asian and European trading sessions today and in the US trading session we see the release of US Trade Balance data. Please ensure you watch my technical video update this morning and we will be back to our regular Sunday Pre
Market Prep Video next Sunday.

Have a great week. AB

Any trade updates throughout the day will be sent via Trade Time. You can also follow my daily updates on Facebook, Twitter, Instagram by searching for TrainwithAndrew. Make sure you subscribe to the Andrew Barnett YouTube channel after watching today’s Sunrise video below.

 

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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