Marc Chandler, Managing Partner of Bannockburn Global Forex and Editor of the Marc To Market website, joins us for a discussion on the macroeconomic factors moving the markets. We kick off the discussion with a look forward to next week where we’ll see what amount the Fed is going to hike rates by, as well as the GDP number. Both data points are sure to have plenty of market commentary, but Marc noted that so far, despite the expectation of a 75 basis point hike and a muted to potentially negative GDP number, the market has said “So what?”.
Another key data point from this week was a lower than expected PMI Purchasers Manager Index reading which showed a weakening economy, and this idea was further bolstered by US jobless claims numbers steadily rising since March of this year, as well as weaker housing starts. This hurt the US Dollar a little more than he anticipated, but some of that was also due to rate hikes being seen with the ECB, as well as Bank of Japan and Bank of Canada going through a bit more tightening
We wrap up getting Marc’s reading of the market differential of the Dec 2022 versus the Dec 2023 rate expectations, showing the market is anticipating rate cuts to come by the middle of next year, but that most participants are expecting the Fed funds rate to go from 1.75% currently to 3.5% by year end, which would mean a 75 basis point hike next week, followed by a 50 basis point in September, and then two more 25 basis point hikes in November and December. We also explore what the other prong of the Fed policy, QT – Quantitative Tightening, where the central bank will start reducing it’s balance sheet may mean for liquidity and the markets.