Today’s Key Market Drivers: 9th October 2018

“If US Bond yields continue to climb watch for stocks to continue to fall.”

It may have been a public holiday in the USA but that didn’t stop financial markets in Asia and Europe from accelerating steep declines that started last Thursday. China’s financial markets were closed last week and when they reopened on Monday the Shanghai index fell by 3.7% and the ASX 200 fell by 1.3%. As I suspected the safe haven assets were the major gainers again with the Yen rising sharply against all of its major rivals. European markets all fell by more than 1% and whilst US futures markets did recover and the Dow Jones closed up 30 points the overwhelming theme at the moment is “Risk off” with traders continuing to fret about rising US interest rates. Simply put investors are selling down some of their stock portfolios to protect risk and they are moving that money into fixed income such as US Government Bonds. The US bond market was closed on Monday for Columbus Day and traders will be eager to see how bond prices trade on Tuesday. If they continue to move higher than the stock market is again likely to move lower.

I will warn you now that when financial markets fall sharply as we have seen in the past 3 days novice traders often will fall in love with the notion markets are about to continue to fall and they often add far more volume to their trading positions. This is what is called financial suicide because professional traders know exactly how novice traders act and what I suspect may happen in the coming 24 hours (we saw it to some degree on Monday) is that market’s will rebound sharply, scaring the crap out of anyone who’s just entered short and are late to the party. The “overloaded with volume” short sellers panic and bail out of their positions and then on Wednesday or Thursday the selling pressure resumes and they drive it lower once again.

The AUD & NZD may be off their lows for now but I suspect the downtrend that has resumed will push the AUD v USD below 0.70c in coming days. The Chinese Government this week announced plans to again cut the amount of money banks need to keep in cash reserves. This move is to try and stimulate the economy and with the US and China trade dispute still simmering, China’s stock market falling very sharply on Monday and its currency the Yuan also falling like a rock. With Australia being a proxy for China on currency markets, if Chinese stocks fall again today and the Yuan continues to slide I expect the Aussie and Kiwi Dollars will also continue to weaken.

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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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