Today’s Key Market Drivers: 9th May 2019
RBNZ cuts rates to 1.5% as expected sending the Kiwi Dollar lower.
The Reserve Bank of New Zealand as expected cut its official interest rate from 1.75% to 1.5% on Wednesday sending the Kiwi Dollar over half a cent lower against the greenback.
The RBNZ said “Domestic growth slowed from the second half of 2018. Reduced population growth through lower net immigration, and continuing house price softness in some areas, has tempered the growth in household spending. Ongoing low business sentiment, tighter profit margins, and competition for resources has restrained investment.”
Employment is near its maximum sustainable level. However, the outlook for employment growth is more subdued and capacity pressure is expected to ease slightly in 2019. Consequently, inflationary pressure is projected to rise only slowly.
Given this employment and inflation outlook, a lower OCR now is most consistent with achieving our objectives and provides a more balanced outlook for interest rates. I expect another cut from the RBNZ in the second half of 2019.”
Financial markets brace for more news on the US-China trade deal.
Financial markets on Wednesday spent most of the day trying to digest and analyse what a larger trade war for the global economy will look like when the 25% trade tariffs against China kick in at 12.01am tomorrow morning Washington DC time. US authorities are adamant the increase in tariffs will come into effect irrespective of whether or not the Chinese show up to further trade talks this Thursday and Friday.
Last night I posted an article on the Train With Andrew social media channels which was published by CNBC titled “China backtracked on nearly all aspects of US trade deal.”
Source CNBC: “The diplomatic cable from Beijing arrived in Washington late on Friday night, with systematic edits to a nearly 150-page draft trade agreement that would blow up months of negotiations between the world’s two largest economies, according to three U.S. government sources and three private sector sources briefed on the talks. The document was riddled with reversals by China that undermined core U.S. demands, the sources told Reuters. In each of the seven chapters of the draft trade deal, China had deleted its commitments to change laws to resolve core complaints that caused the United States to launch a trade war: theft of U.S. intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.”
If you would like to read the entire CNBC article please visit the Train With Andrew Facebook page.
Get ready for 0% interest rates in Australia and New Zealand.
It is conceivable that Australia and New Zealand will join Japan and parts of Europe with 0% interest rates in the years to come. Global interest rates are at rock bottom and with the credit cycle of global expansion from 2008 to 2018 coming to an end, China’s economy steadily slowing there is every possibility that if we see another global economic contraction in the coming 3 years (probable in my view) the RBA and RBNZ will need to reduce their official cash rates to 0% just like they are in Japan, Switzerland and other parts of Europe.
When this occurs, the next step is for the Central Bank to print money and inject this cash into the economy by buying financial assets. When that doesn’t work another option of last resort is to print money and hand cash to consumers, more commonly known as helicopter money. This policy has was used after World War 1 and 2 and history is a very strong guide as to how Central Banks and governments will likely behave in the future.
According to Ray Dalio the world’s most successful money manager traditional monetary policy measures, lowering interest rates won’t be as effective in the future and what will be needed is a combination of Fiscal policy (government incentives such as tax cuts) and monetary policy (money printing controlled by Central Banks).
I am determined not to allow any of our clients at LTG GoldRock to stick their heads in the sand and asses in the air and not understand what is a probable outcome if we see a global economic slowdown and how to protect and prosper through this period.
Pound weakens as Brexit uncertainty weighs.
The British Pound has been sold in the past 24 hours as traders’ price in their expectations that Brexit negotiations between Conservatives and Labor are about to break down with an announcement imminent. The UK has until October to sort out Brexit after initially failing to come up with a credible Brexit plan before March 29th.
The Pound had recently broken some key technical levels to the upside but the recent slide back lower and increased volatility surrounding the US-China trade dispute is seeing a flood of money go to the safe havens.
Yen rallies as safe-haven demand increases.
The big winner in any financial market instability is the Yen and this week has been no different. Every major base currency that trades against the Yen is sharply lower and if trade talks between the US and China deteriorate the Yen will only continue to strengthen along with the Swiss Franc.
You are always one decision away from a totally different life.
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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