Trump attacks China with a flurry of Tweets.

Donald Trump sent the Aussie and Kiwi Dollar’s to new lows on Tuesday after letting rip with a flurry of 3 Tweets directly criticising the Chinese over not buying American agriculture products and suggesting China is doing very badly.

Trump knows the US has the upper hand on trade negotiations, and China knows it too, and unless the Chinese are going to bow to the American demands (won’t’ happen) then the trade war will only likely intensify.

Australia is so heavily reliant on China any negative publicity surrounding a trade deal with the US directly impacts the local currency and any emerging Market that is also reliant on trade with China.

Following are the Tweets that Trump sent that got traders selling down the AUD and NZD leading into the opening bell on Wall Street on Tuesday.

“China is doing very badly, worst year in 27 – was supposed to start buying our agricultural product now – no signs that they are doing so. That is the problem with China, they just don’t come through. Our Economy has become MUCH larger than the Chinese economy is last 3 years…”

“..My team is negotiating with them now, but they always change the deal in the end to their benefit. They should probably wait out our Election to see if we get one of the Democrat stiffs like Sleepy Joe. Then they could make a GREAT deal, like in the past 30 years, and continue”

“…to ripoff the USA, even bigger and better than ever before. The problem with them waiting, however, is that if & when I win, the deal that they get will be much tougher than what we are negotiating now…or no deal at all. We have all the cards, our past leaders never got it!”

The US / China trade war could topple stock markets.

The trade war between the US and China has the potential to significantly lower business sentiment and consumer confidence if Donald Trump imposes further tariffs on China and the war of words that Trump loves to play continues.

Stock markets have been rallying strongly in 2019 on the back of lower interest rates and company earnings that have not yet been impacted by slowing growth. Growth doesn’t need to slow for traders to sell down stock portfolio positions if they believe there is little hope of a trade deal being done between the US and China.

If hedge funds simply went defensive for the balance of this year, I would suggest a large portion of the returns to clients at the end of 2019 would still be double-digit returns so long as the hedge fund was able to protect from any downside in the final 6 months of the calendar year. The stock market has already rallied high enough for them to justify getting defensive and all it will take is a giant big elephant to enter the room, such as a heightened trade war between the US and China.

US stock indexes closed marginally lower on Tuesday, however, if China decides to go on the offensive and returns fire after Trump’s Tuesday criticisms then stock markets could turn on their heels very quickly. The market is looking for a reason to sell off and Trump may be about to give it a reason to pull back. I continue to hold the view a larger and more sustained selloff in the last quarter of 2019 is more likely. CNBC reports this morning that “more than 52% of S&P 500 companies have reported quarterly results thus far. FactSet data shows 75% of those companies have posted a better-than-forecast profit.”

Traders will now wait for the Fed decision.

I don’t expect any impulsive moves in financial markets in the coming 18 hours leading into the US Fed statement. The market has priced in a 0.25% cut in the official cash rate and what investment banks and hedge funds want to hear is forward guidance on how many more cuts the Fed will deliver before Xmas. Trump wants a full 0.50% cut now and further cuts in coming months but in reality, the Fed will likely cut 0.25% and advise the market that it will be data-dependent on future cuts.

I will be up at 4.00am AEST tomorrow morning to watch the press conference with US Fed Chairman Powell as watching price action around such an event is a learning opportunity no matter how long you have been trading. I take notes on how price reacts in my trading journal so I can remind myself in the future of what may occur when a similar scenario occurs.

The Pound will continue to be extremely volatile.

The British Pound will continue to lurch higher and lower in coming weeks as we once again return to Brexit countdown trading conditions. The press on Tuesday suggested new PM Boris Johnson was playing chicken with the EU on a Brexit deal and the Pound has been sold off heavily this week as the major players in financial markets see a significantly higher likelihood the UK will crash out of the EU when Brexit D Day arrives in October.

Every day I urge you to look after your risk management and when it comes to the Pound even more so.

Get ready to see the AUD move sharply this morning.

China’s latest manufacturing numbers are due for release at 11.00am AEST today but this number will be trumped by the 2nd quarter Inflation reading for Australia which is due at 11.30am AEST. The market expects the latest official inflation reading to be 1.5% annually or 0.5% for the second quarter. If the CPI reading is below estimates the AUD will be sold off quickly and visa versa if the number beats estimates.

Unlike most other countries official inflation reports are only released quarterly in Australia so the potential for a larger shift in CPI is more likely and this gives traders reason to use the data number to buy up or sell off the currency. If the CPI data is out of line with economists’ estimates expect to see the AUD move up to half a cent or more in the hours following the data number.

Buckle up my friends.

In the European trading session today, the market will contend with German Unemployment figures and Euro Zone GDP and if you see the Euro move lower around 7.00pm AEST you will know the growth number has missed estimates. Canadian GDP is also set for release in the US trading session and the unofficial Private ADP US jobs report will give traders something to consider before the official US jobs number of Friday.

Buckle up my friends’ markets are about to get extremely busy for the rest of the week.

AB

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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