While the Federal Reserve is widely expected to cut rates at this week’s policy meeting, Brent is watching the decisions of other central banks for better clues on the direction of the global economy.
Hawkish Cut. The Federal Reserve Open Market Committee is expected to cut rates by 25 basis points on Wednesday, but Brent doesn’t think they’re going to sound enthusiastic about it. “…they have the votes to do the one cut, but they don’t really have a lot of support for a mega dovish policy stance….as much as Trump wants lower rates, the biggest poison politically is inflation and inflation is not gone.” He pointed out even White House National Economic Council Director Kevin Hassett, rumored to be the front runner to replace Powell next year, is now saying the Fed is data dependent and shouldn’t be projecting policy six months out. Bloomberg
RBNZ Pace Car. While there has been much ado about a policy rate HIKE in Japan, Brent argues much of that is already priced in. He is watching The Reserve Bank of New Zealand instead. Though they don’t garner big headlines, the RBNZ, “tends to be one of the earlier signals in the pro cyclical economies. A lot of times, RBNZ will be the first to move and then Bank of Canada and Royal Bank of Australia tend to follow.”
Why Hike Now? There was a long and variable lag but the rate cuts put in place by these central banks are finally having an impact. While there are pockets of weakness, like the U.S. labor market, Brent sees signs of the global economy is reinflating, with commodities doing well and Chinese exports hitting all time highs.
The Missing Puzzle Piece. Bond and commodity markets have been sniffing this out, but energy has been the missing piece. “Generally, if commodities are going up, but oil is not moving those commodity indexes don’t really flash a lot of red in terms of inflation. But now what people are thinking about is if the oil and gas companies themselves haven’t been trading that bad with oil here, imagine if oil went higher?”
(Sidenote: You’ll remember in last Friday’s show Dale Pinkert is watching crude as a possible upside breakout, with geopolitics a possible trigger.)
New Year’s Resolution. While everyone is hoping for a Santa rally, Brent is trying to nail down the favorites trades of the new year. He’s identified a pretty strong seasonal pattern which suggests the most popular trades tend rally from December 15th to mid-to-late January. Call it momentum, call it new year’s hopium but it’s got a track record. Brent’s top contenders as of recording time were short USD and long global equities. What’s your best guess?
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