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The Dow Jones officially closed down 1032 points or 4.15% to mark one of the biggest single-day declines in the 100+ year old stock index. We are close to bear market territory now and the selling has not ended my friends, with global interest rates on the rise and the US Fed leading the charge, the bull market is dead and buried in my view and the recent slide lower on global stock indexes will continue albeit over time at a more subdued and orderly pace. Simply put global interest rates are going to rise and the stock market cannot and will not continue to rise as this happens. A correction and pull back is inevitable. The Bank of England overnight said it planned to raise its cash Rate sooner and faster than the market expected and you will see the pricing in further of these comments in coming weeks as the Pound is likely to be driven higher in value. The Bank of England, European Central Bank and US Federal Reserve are three of the biggest Central Banks in the world and in my view are all going to be forced to raise their official cash rates in 2018.
Here are the warning signs and the consequences you should understand.
- The biggest Central Banks in the world are going to raise interest rates. The US Fed 3 or 4 times in 2018, the Bank of England likely twice maybe three times and the European Central Bank a minimum of once.
- This will drive money out of stocks and into fixed income or cash. This is already happening.
- Improving global growth and steadily increasing wages will drive up global inflation forcing the Central Bank’s hand to raise rates to ensure economies don’t overheat. This will be a double whammy however and may send the global economy backwards again.
- Australian property prices, which are ridiculously overpriced have the potential to fall by as much as 20% as homeowners struggle with low wages growth in Australia and higher mortgage rates which are already starting to bite. We are already seeing a fall in property prices in Sydney and this will only spread further across the country.
- The end result for Australia is a potential recession as people will hold onto their money, not spend and this will see lower growth and the potential for a serious economic downturn.
Millions of Australia’s born here or who have migrated here have never seen or experienced a real recession and in my view, in the coming 3 years, they will see their first.
Overnight we saw the Aussie Dollar make news lows as a direct result of the RBA holding firm on interest rates in the coming 9 months. The RBNZ said they were keeping rates on hold until mid-2019 which saw the Kiwi Dollar finally roll over and head back lower. This new trend lower for the AUD and NZD has only just begun.
The Bank of England’s comments about lifting rates sooner and at a faster pace helped boost the Pound and I believe the Pound has the potential to continue to rise against the US Dollar in particular. When a Central Banks says rates must go up faster and sooner it’s going to grab the attention of investment banks and hedge funds and I believe the Pound will be seen as a buying opportunity on any dips back lower.
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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The post Today’s Key Market Drivers: 9th February 2018 appeared first on LTG GoldRock.
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