Michael Hewson, Chief Market Analyst at CMC Markets
#1 Morning Stock Show To Get You Ready For The Stock Market Open, PreMarket Gainers, Earnings This Week, Economic Data & More!
Benzinga PreMarket Prep 8:00AM ET- 9:00AM ET BenzingaTV on YouTube.
#1 Morning Stock Show To Get You Ready For The Stock Market Open, PreMarket Gainers, Earnings This Week, Economic Data & More!
Benzinga PreMarket Prep 8:00AM ET- 9:00AM ET BenzingaTV on YouTube.
Category
đź—ž
NewsTranscript
00:00 I like what you said Michael Huston over there at CMC markets. I was just keeping an eye on the market here for a second
00:07 Michael help us out here. I mean, come on. You see what the Fed did you see what Williams is saying now?
00:15 I know you guys are holding steady over there. What what what's the view from across the pond?
00:21 well, I
00:23 Gotta say guys
00:25 Powell's tone
00:27 On Wednesday completely through, you know completely through me. Yes the beginning of the month
00:33 He was saying that policies. We're not sure policies restrictive enough
00:37 And then he suddenly goes full reverse ferret
00:41 I mean ultimately I thought I was listening to the president of the European Central Bank
00:46 not the chairman of the Federal Reserve because ultimately the guard was hawkish and
00:52 You look at this morning's PM eyes France and Germany and they are horrible. I mean we're talking
00:58 France and Germany being in recession
01:00 France
01:02 Q3 contracted 0.1 percent those PM eyes this morning suggested that q4 is going to be contraction and yet ultimately
01:10 The guard would have us believe that then not going to be cutting rates in the first quarter of next year
01:17 Well, I got word for that baloney. Um
01:21 They are going to be cutting rates probably the end of q1 beginning of q2
01:25 Federal Reserve not so much. I think what Williams is saying makes perfect sense
01:31 If you look at what they did with the dots
01:33 You know, we're talking
01:36 Three rate cuts potentially next year not six the markets way ahead
01:41 Way way over his skis on this and ultimately I think
01:45 You've got to look at the data and the data doesn't support the idea of a fed rate cut in the first quarter of next
01:50 year and of
01:52 discussion
01:53 Excellent mention there Michael we were talking about it this morning Dennis and I were like trying to going back and forth
01:59 Did that change from data dependent to now being more in predictive mode?
02:05 And the reason why we were saying this is that we could think that maybe they saw the recession coming and they're kind of trying
02:12 To put out the right word words to kind of support the market and keep this recession away
02:19 Because they still mentioned is slowing down in the economy, right? I think the economy is slowing
02:24 I don't think you're going to match the q3 5.2 percent. We'll probably get that confirmed
02:29 Next week inflation is slowing jobless claims two hundred thousand unemployment 3.9
02:35 but I think there's also an element of
02:38 Politics in this pivot
02:42 Yeah, they don't want to be cutting rates in the last quarter of next year
02:48 So what they want to be doing
02:50 Potentially is getting out in front of that and potentially getting their rate cuts done
02:55 The end of q2 beginning of q3 and then ultimately trying to stay above the political fray
03:02 Now, I think there's an element of politics to this because if you recall four years ago
03:07 When Trump was going for re-election
03:11 He wasn't shy about trying to politicize the Fed and I don't think the Democrats will do
03:17 I think the Democrats will probably do the same thing
03:19 And I think they want to try and steer it as much away from that as they can
03:23 Is this the right move of the flip they go quickly
03:29 Between you know slashing rates and cutting rates. I think rates are restrictive. I think they can come down by about
03:36 25 well by 50 to 75 basis points over the course of the next 12 months quite easily
03:44 But do I think they're going back to you know where they were pre pandemic? No, I don't
03:49 I think there's a wider risk here though Mitch and I think it was in the China data earlier this week China's in deflation
03:56 Yeah
03:57 And the way that European inflation is going I mean EU CPI is at 2.4 percent
04:04 The target for the ECB is 2 percent or below
04:09 So we're pretty much there already, which is why I don't understand why they're so reticent about
04:15 Signaling a potential, you know pivot the data supports it. They say they're data dependent
04:21 Well, hello Christine. Look at the PM eyes. Wake up. Is anybody there? All right
04:27 We just are continuing here with this. This is just rocking stuff here. I'm just coming in the background here Michael Houston
04:34 We're gonna have a question for you in a second
04:36 But Fed Williams is just undoing everything the power just said premature to be thinking about timing of rate cuts
04:42 You know talking about they're still like basically they saw this rip-roaring rally and they're like screw this
04:47 This is not what we wanted to happen and they're taking it all back like they're saying everything back
04:53 I don't even know how you trade this like when you got Powell saying one thing and
04:56 Williams saying the opposite thing rate cut issue not the main question for the Fed
05:00 I mean this is like it honestly looks like they put Williams out here to undo this
05:06 Wicked market rally that we just saw so
05:09 You know, it's what I said earlier though guys. I think I think markets have over interpreted it. We're in December
05:16 So if you're trying to trade this trading up to Christmas
05:20 Then I think you're best to stay clear if you haven't made your money by now
05:26 Don't get involved because these sorts of market moves are potential widow makers for you
05:31 You should you know, you should have made your money by now
05:33 And I think ultimately what he's doing is he's trying to reset the narrative a little bit the markets got ahead of itself
05:39 Yeah, you know he's right to some extent the US economy doesn't need a rate cut at this point. I
05:44 Think one thing that was said also
05:47 You just mentioned it Michael how a pal earlier in the month was saying that we weren't sufficiently restrictive enough and he's coming in here
05:54 And also stating that right now and so that's completely going back to exactly what Powell was talking about a month ago
06:01 So that's just a complete flip in the narrative. It was two weeks ago. I mean, it was the first of this month
06:07 I think there are thereabouts the power said that
06:09 So, you know, this is not helping the credibility of the Federal Reserve
06:13 You cannot have on the one hand pal saying one thing on a Wednesday. Yeah, turning around
06:18 On a Friday there needs to be a middle ground
06:23 Yeah, I think someone's getting dropping to me how contradictory all this stuff is like I like I'm agreeing with you completely
06:30 Here Michael, I cannot pull like one. I couldn't believe what Powell was saying
06:35 You know like what that calm, you know talking about cutting rates like that was what you're shocking
06:39 I think that's why it was such a violent move up in the IWM because like oh my gosh
06:43 The feds gonna cut rates even without you know, the economy falling off a cliff and now you get the Williams saying the exact opposite
06:48 So what's the market to do here as a trader? Like I don't even know what to do
06:52 We just wait for the next Fed speak because we just rallied, you know significantly now
06:57 We're giving not a lot of it back because I think the market thinks obviously power is more weight than Williams
07:01 But this is a significant sell-off here. How do we interpret this?
07:04 Well, I mean look at the look at the yield
07:07 Look at the two-year yield the two-year yield is still well below the level
07:10 It was before Powell opened his mouth on Wednesday. I mean the two-year yield
07:14 I'm looking at my Bloomberg chart was around about four point seven three percent. We're still at four point four seven
07:19 I mean we drop nearly 50 basis points on on the basis of what Powell said on
07:23 Wednesday which to my mind is completely way overdone. So we're just reversing some of that
07:30 Let me reiterate. We will probably see rate cuts next year
07:34 We just won't see as many as what the market was currently pricing. The market was pricing five or six. Sorry
07:41 I just don't see that happening in the absence of a resilient US economy
07:46 And I think that's what we're really seeing here the markets the fence looks at the market
07:51 And I thought what the hell is going on here
07:54 We need to somehow reset the narrative a little bit and try and get people back to where we think they should be
08:01 And I think that's essentially what Williams is doing
08:04 Is there any need to cut Michael, you know
08:09 No
08:12 So then why bring the conversation that's what I'm wondering because of course if the idea here was also to get the Fed balance sheets down
08:19 Why even bring the conversation before we see that economic weakness?
08:23 Again, you know, I mean, that's why I was surprised at the way Powell came out on Wednesday
08:29 I expected him to push back a little bit on the market narrative and the fact that he didn't and they lowered the dots
08:35 And put them back to where they were in September. I mean that sort of makes sense
08:41 To my mind because ultimately I think the Fed was looking to be restrictive in September. They raised it to 5.1
08:47 By the end of next year, they've moved it back to where it was in September
08:51 You know, I think that's all they really needed to do. But unfortunately, I think
08:55 You know, I don't know what was going on in Powell's head if I'm honest with you
09:00 and certainly I think
09:03 This is a potentially a damage limitation part on the part of Williams
09:08 Have we got some more Fed speakers next week? We'll probably see a further reinforcement of the of the message that we're getting from Williams today