Sentiment in positive territory for the first time in many months

There is a maxim in the market that says “buy on rumour, sell on news”. That is exactly what happened in the US on Wednesday night when the 0.25% interest rate cut was announced. Markets took a dive with the Dow and gold, both down about 1.2%. On Thursday night the Dow was down again, by 1% on the close, due to Trump’s tweet on more tariffs on Chinese goods. However, gold went the other way. Was that because markets smell conflict?

As we said last week, the immediate driver of markets has been the outlook for interest rate cuts and there was little thought beyond them. However, the very fact that there needed to be a cut stems from threats to the economy. There is nothing to get excited about here.

Markets have been bubbling along almost in ignorance, but that can’t continue if the focus shifts to downside expectations. What negative news is just around the corner? Is the $0.5bn collapse of the property development company, the Ralan Group, just the start of the negative news flow in Australia? Factor in that Adelaide Brighton is scraping its interim dividend and taking a $100m write down hit, and DJ’s statement that retailing is in recession. When will fear take over as the primary driver of the market, whipped along by vengeful journalists? We have had a dream run in the market over the last six months, but nothing lasts forever. 

 WeeklyComm3Aug20197.pdf