Today’s Key Market Drivers: 7th November 2018
“Markets could see severe volatility in the coming 24 hours.”
Financial markets remained calm through the Tuesday global trading sessions as Wall Street awaits the results of the US Mid Term Election. Currency markets remained mixed with the Pound continuing to drift higher and strengthen as traders buy into the rumours a Brexit deal is getting closer. The Yen softened as a general risk-on mood was seen across US markets with the S&P 500 up 0.43% as I write and no need to buy into the safe havens just yet. That mood could change very quickly in the coming hours as election results filter through. A change in the status of who controls the Senate and House of Representatives in the USA could see a significant shift in market sentiment for or against stocks and the US Dollar and until polling booths close and results begin to emerge the market is simply guessing. We should start to see some results filter through around midday AEDT. Many are predicting the Democrats to take control of the House of Reps which would likely see the US Dollar weaken in the short term as it would be seen as a blow to Donald Trump’s economic agenda. A surprise result with the Democrats winning both houses I believe would see a severe market reaction for the US Dollar and whilst no leading economists predict this those same economists didn’t predict Trump to win the Presidential election in 2016 either. As traders await the election results the US 10 Year Treasury Yield continued to push higher touching 3.22% on Tuesday but the rise failed to cause any sell-off on US stock indexes and a flight to the safe haven currencies.
The RBA yesterday left the official cash rate on hold at 1.5% and didn’t give any forward guidance on when it may adjust rates. It was essentially a carbon copy of previous statements, however, my view is the next move will be up in the first half of 2019. It will only take a tick up in wages growth to shift the committee’s vote to a “yes” for a rate hike. Traders will know well in advance of the RBA moving on rates because its wages growth that they are now watching and the minute that data moves higher so will the Aussie Dollar as traders will price in their expectation of a rate hike in future months. It hasn’t happened yet but I don’t think a tick up in wages growth in Australia is far away.
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Looking at the economic calendar for today nothing is going to overshadow the US Mid Term Election results with the next major high impacting news item being the RBNZ statement on Thursday morning at 7.00am AEDT. The RBNZ signalled 3 months ago that it would leave the cash rate unchanged until 2020 but if the strong economic data that New Zealand has been recently releasing continues the RBNZ will need to reconsider this view.
Please do not discount the volatility that could occur in the coming 24 hours and your risk management needs to be watched like a hawk to ensure no major drawdowns.
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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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