Ep.92: Fed Sees Smaller Rate Hikes Coming & The Cost Of Thanksgiving!

So hello and welcome to episode 92 of the Market Maker podcast, and going to be on this episode by myself. Piers is otherwise engaged, so I'll do my best to just run you through some of the major talking points in this week. So going to talk a little bit about the latest FOMC minutes, going to talk about the underperformance of the UK economy going forward according to the latest forecast in the OECD, and then volatility in the oil market. After some denials coming out of Saudi Arabia and also what's going on with COVID situation in China. But before I begin, it has been a holiday-impacted week because in the US it is, of course, Thanksgiving. So if you are based in North America and you're listening to this, happy Thanksgiving. And couple of quickfire quiz questions for you. And gonna start off with the costs. Of hosting a Thanksgiving lunch this year because turkey prices have gone up on a year-on-year basis by— you have a think. What do you reckon? Okay. Have you got a number in mind? 24%. So how close were you? So turkey prices are up 24%. If you want to make your mashed potatoes, it's gonna cost you about 20% more than it did this time last year. Cranberry sauce. If you're one of those people that can't eat your turkey without a bit of cranberry sauce, then that's going to cost you an extra 18% as well. Overall ingredients for Thanksgiving, I've got the stats here. The meal in itself is going to cost shoppers on an average about 13.5% more. Eggs and butter, actually key ingredients, of course, for anyone who's got a sweet tooth for those desserts and sides. Eggs were up 74.7%, um, and butter was up 38.5%. So I guess the question there is, why on earth are eggs so expensive right now? Well, egg-laying hens have been impacted very heavily by the avian flu, uh, driving egg prices through the roof, as you've just seen. So yeah, it's a little bit more costly, of course, But I hope everyone gets to celebrate and enjoy the long weekend and festivities if you're based in the States. But let's get straight in and wrap up some of the major news from this week, kicking off with the latest FOMC minutes. And just to give you a bit of an idea for anyone just relatively new to markets, the minutes are basically a line-by-line account of the discussions of which the Federal Open Market Committee— so the decision makers at the US central bank, the Federal Reserve— have over a 2-day period for them to then determine what they're going to do with monetary policy when they meet 8 times a year. Now, the one thing about the US, and very similar to the European Central Bank, is that the minutes normally have like a 2-week lag. They come out and are published after the actual event in itself has happened, i.e., the rate decision. The one central bank in the Western world, um, that's a little bit different is the Bank of England, who simultaneously release their outcome of their deliberations on policy. So they announced interest rates and QE and so forth, but they also drop their minutes. The Fed and ECB have a bit of a delay. Now, why is there a difference between the approach of those central banks? Well, it's really down to how they feel is best from a communication strategy point of view. The Bank of England feel as though it's better to just put all the information on the table up front, and so that the market has full transparency of the latest thinking that the bank has And some of those other central banks have actually talked about, although this hasn't happened, about moving the minutes onto a similar format to the Bank of England. Because if you think about it, a lot can happen, of course, in financial markets in 2 weeks, rendering then a fortnight-old set of minutes redundant. Um, quite often is the case. Um, so what were the main takeaways from the midweek release of the Fed minutes? Well, the headline was that most Fed officials seek to slow the pace of interest rate hikes soon. The actual quote from the minutes was that a substantial majority of participants judged that a slowing in the pace of increases would likely be appropriate soon, while some officials also expressed concern over the impact that rate increases could have on financial stability and the economy. So overall, those comments didn't really have too much of a of immediate impact. If anything, actually bond and stock prices in the aftermath actually rose simultaneously because it's this idea that we are getting more concrete hints towards the Fed pivot, i.e., we still got further rate rises to come over the coming meetings. However, the pace of those rises is starting to slow down in terms of the intensity of policy tightening, meaning that we're getting towards the peak now of the interest rate cycle. So overall, as far as this week is concerned, obviously it's pretty quiet. Out for the second half of the week with the US out. But US equities again looking in to put in a pretty decent performance. Um, the NASDAQ just short of 12,000 now, and the S&P for, for the moment Friday morning, uh, sitting back above 4,000. The other things then were the UK, and the reason why that's come back into focus is because the UK economy is set to be the worst performer in the G20, bar Russia. Over the next 2 years according to the latest forecasts from the OECD. So again, just to put that in context, the only country that's going to be worse economically in terms of growth rates out of the G20 other than Great Britain is Russia. I mean, that's quite a, quite a stark statement, I guess, of the, the kind of predicament that we find ourselves here in the UK. So in its half-yearly economic outlook, the OECD said the UK economy would expand by 4.4% this this year, the 6th fastest in the G20, but then would contract by 0.4% next year. Germany is the only other G7 country forecast to shrink next year by 0.3%, but then we'll bounce back with a 1.5% growth rate anticipated in 2024. So again, it's kind of like this, um, move back up that we're likely to see in growth rates after we go into this recession in the near term. The OECD chief economist said that the UK's poor performance was because of a combination of rising interest rates, government action to bring down borrowing and debt, and then the market turbulence during Liz Truss's brief period as Prime Minister. I still, as we said last week, Piers and I, still can't believe that couple of week period when Truss was in charge, just the amount of damage that's being done and that scarring lives on, as you can see here, because even though things like mortgage rates and so forth have started to ease back a bit, they're still very elevated at this point in time. And then the, the third and final thing I'll just touch upon to wrap up really this week was oil prices, um, closed a little bit lower on, on Monday at the beginning of the week, but there's a really volatile start, um, to, to the trading week. Um, prices originally plunged and then rebounded quite quickly because Saudi Arabia categorically denied the report that OPEC was weighing an increase in output that would help to counteract a loss of Russian crude supplies. So basically what happened here was that prices hit their lowest— oil prices, their lowest level intraday since the beginning of the year, so literally 11 months ago, after the Wall Street Journal reported that Saudi Arabia and other OPEC producers were discussing a production increase of up to 500,000 barrels a day for when the group meets in Vienna. Next meeting coming on the 4th of December. Now, why are they talking about increasing when we're heading into recession? Isn't that counterintuitive of what they would want, which is a firmer price? Well, the point being is that any decision that they're making timings-wise, an increase in output from the likes of Saudi Arabia leading the charge would come a day before the EU is set to introduce an embargo on Russian oil shipments. And plans for G7 countries then to cap the price of Russian crude. So looking to kind of fill the void, so to speak. So overall, um, obviously Saudi denied this, but more often than not, there's no smoke without fire. A little bit like some of the rumor-mongering early in the week as well about Zuckerberg potentially stepping down. However, the communications chief at Meta did deny that. I do often think that when these things start to circulate, it kind of then uh, the starting gun's been fired, and it's probably only a matter of time before these things do actually come to fruition. So certainly with the oil side of things, I don't think I'd find it surprising at all to hear Saudi Arabia lead the, the movement, let's say, of OPEC-related nations to increase supply a little bit when those price caps do come in on Russia. Now the other thing that's kept oil prices fairly suppressed more recently— we are trading below an $80 handle at this present point in time in US oil— is the fact that China has recorded its highest number of daily COVID cases since the pandemic begun, despite these stringent measures designed to eliminate the virus. So several major cities, including the capital Beijing, the southern trade hub of Guangzhou, have experienced outbreaks. And so this is still very much on— keeping traders on watch at the moment for the, uh, well, a couple of different things really. The impact of potential supply chain disruptions. However, as much as there has been a little bit of eye on, on the iPhone production facilities of Foxconn for Apple, where there's been lots of unrest there. Otherwise, it's then about the overall consumption for, for crude oil if they do go into full lockdown, given the broader context of the recessionary environment we're about to experience globally at this present point in time. But that is it. So I'm only going to talk about those things. Hopefully that was a short, sharp update for you just to get you up to speed on a couple of key things. Any students at the moment, because I know I continue to talk to them pretty much day to day, a lot of you in the midst of application season, been posting out a couple of things on, on our LinkedIn channels, so under myself or via AmplifyMe with some useful resources and things. So do make sure you check that out. Hopefully they're all going to be super useful for when you're in interviews and assessment centres and so on. Otherwise, That is it. Have yourself a great weekend, and Piers will be back next week, and I look forward to catching up with you all then. All right, take care.