Talking points on this podcast:
- Cross-asset trader John Netto talks global macro trading
- Does the textbook relationship between interest rates and inflation still hold?
- What will the December 11 Fed rate decision bring?
This time on Trading Global Markets Decoded, our host Martin Essex is joined by John Netto, cross-asset-class trader, author of the book The Global Macro Edge and a former staff sergeant in the US Marines. The big topic this time: How influential are central banks right now and how does the way they are perceived affect the market? Also, discussion turns to the December 11 Fed decision and predictions for future rates.
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Global Macro Trading, central banks and rates
First on the global macro trading agenda is the question: How influential are central banks in today’s market? “That’s a question of the practicality vs the perception of what central banks are,” John says. “I don’t trade reality; I trade perception. The perception is central banks have lost some sway given the protracted years of disinflationary forces at play [worldwide].
“As long as the Fed’s not getting in the way, I think US equities continue to rally higher.”
Does the relationship between interest rates and inflation still hold? “The perception of it holds because when you look at the last Fed rate hiking cycle it was the concern over that relationship and the anticipation of inflation rearing up again that was a huge component of why they were raising rates, up until December 2018.”
Whether it exists is a different question, John says. “I wouldn’t want to test fate and have inflation running at 4% and not raise the Fed funds rate to see how that would work out.
“But at the same time there are other forces at play, including technology gains and the dispersion of demographics that have kept a lid on a number of aspects of inflation.
“We’re in a new paradigm and we’ll look for the market to provide indicators in price reaction in longer-term rates to see how that paradigm evolves.”
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