Today’s Key Market Drivers: 9th October 2019
They haven’t even started yet!
Financial markets sold off heavily on Tuesday and safe havens currencies rallied as traders became increasingly fearful about the upcoming US / China trade talks that have not even started yet. State-owned Chinese newspapers are giving off mixed messages with one saying China is toning down its expectations when talks resume in Washington DC on Thursday but another is saying that China is “sincerely” looking forward to reaching a trade deal with the US. The market has clearly shown what it thinks by selling off the S&P 500 1.6% and rallying the safe-haven currencies.
What triggered the sell-off according to CNBC was an expansion of a US trade blacklist that now includes artificial intelligence companies in China. CNBC also says the US State Department may impose a visa ban on any Chinese official found to be involved in the abuse of Muslims. This comment coming from the USA government of all people?
Markets are also fretting over comments recently made by US President Trump who said, if no progress is made during the trade talks, tariffs on $250 billion dollars of China imports would rise from 25% to 30% on October 15th.
With only 22 days to go a Brexit deal seems less and less likely.
The Pound fell sharply on Tuesday as reports surfaced of a breakdown in Brexit negotiations between the UK and the European Union. The UK has until October 31st to agree to a deal with the European Union or risk crashing out of the EU which would trigger a significant sell-off on the Pound and highly likely cause stock markets to weaken on the back of the negative sentiment it would cause.
A leading US inflation indicator just flashed “Warning”.
The US Federal Reserve committee would have noted on Tuesday a large decline in the latest Producer Prices index, which can be a leading indicator for inflation. If inflation drops in coming months the US Fed is going to need to continue to lower US interest rates and this is a bearish sign for the US Dollar.
Minutes from the US Fed’s recent monthly meeting will be released at 4.00am AEDT and will certainly be closely watched for any indication the committee is leaning towards another rate cut in October.
Remember what I said when this occurs. “US markets have now closed lower for 3 straight weeks.”
I noted last week that when a market sells off very sharply if a relief rally occurs it is highly likely the low that was created will be tested again. The low I am referencing on the S&P 500 is 2854, just under the 200-day EMA on the daily chart. If we see two consecutive days of declines and the S&P 500 closes below the daily 200 EMA with conviction this is a very bearish sign for US stocks. The Japanese Yen and Swiss Franc would rally strongly.
Give me more volatility so I can trade back the other way.
The more volatility the better. I want to see markets sell off sharply or rally very very strongly as this creates the formation I want to see so I can trade back the other way. Take the recent EUR v USD trade I took. The Euro had been sold off very heavily in the days leading up to the market signal I took. Once price traded through the key entry-level price continued to rally, high enough for me to take profit and exit another profitable trade.
Professional traders are not interested in being trend followers in my experience, they are contrarian traders, trading the opposite direction to the market herd, which incidentally is losing money the vast majority of the time. In my view when it comes to investing and making meaningful money you always want to be looking to buy when the herd is selling. The phrase “the trend is your friend” is a lie. The biggest lie in financial markets in my view.
In other news.
Today sees the release of the latest Westpac Consumer Confidence number which could impact the Aussie Dollar if out of line with expectation. If yesterdays NAB Business Confidence number is any guide today’s Consumer Confidence number is likely to come in weaker than expected and may drag on the local currency in the short term.
“I can’t” really means “I don’t want”.
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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