 minding. I really want to talk about the narrative that is coming for the next probably year or so which is going to be which central bank is looking to be the first to cut rates and this is really important because it will determine which pairs you're looking to buy or sell. So yeah let me get into this just let me know if you can see my pen tool one second can you see this by the way guys can you see that yeah yeah excellent excellent excellent welcome Lawrence as well let me just mute some of the mics I think there's a little bit of feedback coming through on mine and shady advice is here as well welcome so just as again more of a more of an overview as to why rate cuts and overall why we're looking at divergences or maybe maybe to kind of look at it in terms of leading and lagging central banks in terms of rate cuts because as we know all basically paths and roads lead to interest rates right so interest rates INR right in terms of currency value and and as well you do have a risk-off sentiment right risk off so risk on a risk off right to the side but typically when you think about risk on you're more concerned with interest rates and when you're thinking about risk off the risk off side of things you're more concerned with I guess it's more sentiment fear you know uncertainty doubt and safe haven and traders putting their money into where they think money then money's going to be more protected so all roads into interest rates right and the main things that determine whether a central bank is going to hike or cut rates or just keep rates on hold right is going to be what determines what happens with GDP and what happens with inflation now inflation is really the big unknown traders I mean central banks try to manage inflation via managing interest rates but they also do the same thing with the economy right so they're intertwined so depending on what happens with inflation and GDP you know that will determine what happens with interest rates right and it's really important also as well to know that everything goes in a cycle yeah you have a GDP cycle you have an inflation cycle and again that determines interest rate cycles and so I'm not necessarily going to go into the details as to why but just understand that this is historically what you know happens you can go back and look but this is if you understand you know the the relationship and you've done the short course and test I think it's channel was it channel 28 27 or something like that if you submitted that to me then you should know this if not then I definitely advise you do this right and so GDP and inflation actually are correlated in a sense that whenever you have in certain phases of the economic cycle you will have either inflation or deflation right so for example we have boom we have contraction we have recession we have bust or slump phase then you have the recovery and then you have the expansion and then you back to the boom phase again right and then it you know and then it continues on and you're out here again and then it goes back to contraction same thing with inflation right so inflation cycles you usually get rising inflation yeah in the in the recovery expansion phase in the boom phase of the economic cycle yeah and then you typically get deflation during the contraction recession or bust or slump phase yeah so you can actually actually could predict or forecast what is likely to happen with the economy right depending on where inflation is likely going right because if we know that they're correlated we should be on this end of the cycle right because things are contracting and we're seeing inflation come down now which one leads and which one lags I haven't necessarily looked into 110% but they're both correlated right so it for example you won't you I don't think you'll ever see and I don't say ever but it's highly unlikely that you'll see deflation in a you know boom or recovery or expansion phase of the cycle just like you will probably likely unlikely to ever see deflation of sorry inflation or rising inflation in the recession you know bust or slump phase right or the contraction phase and so where we are now we're moving into the phase we are moving into the stage of if any of you have been moving for any length of time maybe the past you know year or two we've been really kind of focused on the on this side of the cycle right so with the you know recovery expansion stroke you know boom phase of things now we're coming into the contraction phase you know recessions everyone's talking about recession next year and how you know pretty much most countries are likely to go into a recession and so again interest rate cycles just to link this to interest rate cycles interest rate cycles will again move in the same way yeah that for example of GDP and inflation right so if you know that these two are correlated right these two are correlated then the same thing should happen with interest rates right if you're in the if if you're in the phase where you're in the recovery expansion boom phase and inflation is rising above their 2% target of course yeah because it got 2% target then interest rates are likely to be likely to rise right like to hike interest rates and so if we're heading into the contraction you know recession bustle slump phase of the of you know the GDP cycle the business cycle therefore the inflation cycle therefore in the interest rate hiking or cutting cycle we should be on the cutting end right and you'll see in that play out right now if you're not seeing a play out that is what all the big fuss is about yeah it's basically where are we and what is the central bank likely to do in the future you see an inflation come down you see in signs that the economy is contracting therefore you're seeing interest rates start to come down and we know that interest rate cuts typically devalues the currency now the level of devaluation because we trade currencies together right for example euro dollar all right the question now becomes the nuance which is who is likely to cut first and who is likely to cut lost yeah and so the per the say the person but the central bank that is likely to cut first yeah is the country that really you should look to you should look to sell first yeah and we have a great really good in fact let me just clear this by the way is everyone following is everyone following me is there any questions anyone got any questions that they want to ask yeah no if if you want to ask any questions then just you know post it in the in the chat now this is by the way this was this is ing and this is found in the I think I put it in the bank I think it's the bank research channel within one of the years I've had a bank forecast of the bank research channel that I put this in and so this is where we talk about or where you know I'm talking about who's hiking also I say who's cutting first and who's expected to cut first and for example and and also as well the question is by how much which also is a determinant value of a determining factor of value this is what the ing are predicting right so what we've got is all the central banks they think that the next move for the dollar is going to be in terms of a you know a cut right it's going to be May Eurozone I think June Bank of Japan I think May is going to be probably one of the central banks that I trade going to be a hike see I trade what we trade in terms of like we don't know I don't necessarily trade you know these Swedish corona for example all that all the Norway currency Norwegian currency and again so we've got cuts cuts and these are what is expected now this is just one bank by the way their word isn't gospel so you have to do a bit more research in terms of looking for information where banks are telling you where they expect or what they expect to happen with each central bank and it's not going to be easy and sometimes the information isn't necessarily out there but you know there are times where we can we can see that and they've been actually talking about it or mentioning it quite a lot in Bloomberg because I don't know if anyone's mentioned seeing it but you're starting to see a lot of paragraphs within articles that talk about swaps rates right swaps of rates of pricing in rate hikes and cuts etc when you see something like that and I'll and I think I'll go over an example of that a little bit later but basically it's just talking about whether the market is positioning itself for rate cuts sooner or later now since this has been released I have seen information that actually kind contradicts this right where you've got in fact they think that the economists and traders are betting on a later move for the United States yeah and an earlier move in fact this is now I think it's like April right this is April rather than June and so yeah so the point I'm trying to make is this is first of all you got to get more of a consensus view right and secondly why the question is well why does the bank think or why do banks think that this is likely to happen and again this comes back to our understanding of economic cycles and where we are right and so if we understand that if interest rates are coming down I'm sorry inflation is coming down right towards their 2% target it means that the central bank are likely unlikely to continue hiking rates right but then we have to look forward and say well if we're in this cycle yeah if inflation is coming down and we're probably heading towards deflation then we are automatically know that we're heading into a potential recession which then means that you know we're gonna look for cuts and so it's understanding the data today which has an effect of pricing you know over the next three four five six months right even though I think it's already I think most of the pricing is actually or the forecast are being priced in based on what's happening today so as an example let's say all this you know I throw out a bit of an easy question right if if let's say for example GDP or GDP but if unemployment non-farm payrolls right comes out on Friday comes out on Friday and let's say it's a fantastic number in terms of employment right it's a really high number what do you think the the market is likely to price in let's just say that currently it is pricing in a May cut yeah but let's say non-farm payrolls comes in and it's a fantastic number do you think that ING or you know banks in general are likely to move this expected cut in May towards April or further out towards maybe June or July which way June July they were considered delaying the rate cuts absolutely right that's exactly it right towards August right exactly towards this end right and the reason why we all instinctively know the reason why but all we say instinctively but we know the logical reason why but just to explain it for everyone and anyone who's watching this video and it's because non-farm payrolls is an indicator of how GDP is doing right a gross domestic product and typically in in a recession you have lower employment and higher unemployment right but if employment is continuing to rise yeah that means that GDP may not be heading into the recession as soon as maybe the market is pricing in or how you know whoever expects right a recession maybe in if a recession is expected for example in in you know May or June right then that's gonna have to be pushed back yeah in terms of well it might the recession may not happen in May or June anymore it might happen in you know July or August which then again we overlay that with understanding okay well if that's the case then in fact the interest rate cycle should also be delayed yeah and so because there's no really need for the central bank to cut rates if the the economy is doing okay or better than expected of course you do have to overlay that with inflation but if inflation is going down to their 2% target I think we're at what we are 3.2% or something like that quarter on quarter and if it's starting to come down still but the but the economy is doing okay then we are likely to not have to cut sooner now if non-farm payrolls comes out as being you know terrible for example or below way below the the forecasted number that is basically the opposite right that the economy is contracting because we've got low employment and potentially depending on the unemployment numbers if that comes in higher then you know then the market is going to price in April but depending on where we are right depending on where we are on this time horizon in terms of when is the first expected cut and also how many cuts right because in fact you still you also got ING who are forecasting more cuts then than Europe which is again a bit of a bit of a strange one but that is also a factor because the more cuts the more devaluation the the the least amount of cuts the least amount of devaluation right and so we need to keep an eye on the data which we always do anyway but it's this is the reason why the data we look at is very significant and we can get a better understanding as to which pairs we should be trading right the dependent upon what we are our understanding of GDP inflation interest rates what's happening and so if we had good GDP news we're likely to push back on the the rate cut also as well if inflation right if inflation comes out you know higher than expected yeah or remains sticky for example and is not heading towards their 2% target yeah then that is also going to cause the central bank or forecast about what central banks are likely to do with their cuts to be pushed further into the future and why is that why would stickier inflation cause central banks or you know central banks or yeah actually central banks to maybe actually cut a bit later anyone when I hazard yes simple stuff I know you guys know it but just to double check hold for longer pretty much yeah very succinct Alexander's thank you very much that's after they have to hold for longer right so they don't have to necessarily cut so much or they might even have to hike in the case of the Australian dollar but if inflation stays sticky or the New Zealand dollar but pretty much they're holding for longer so then the cut will come later right so they'll be holding a holding December January February March April if inflation is stickier today right and if they just not coming down to their target then they may have to hold for longer while inflation does get down to their 2% target so this is basically what is going on and so just in case anyone was was confused or was unsure as to what is going on in terms of what the narrative now is and what it's likely to be or very highly probably likely to be in in the future of course you do have risk-off sentiment as well but from a fundamental perspective this is the game plan this is what we always need to keep our eye on and and certain data so Daniel says so higher inflation expectations will become entrenched and central banks lose credibility to that's another thing that's more again more nuanced than talking about credibility there was a there was an article that I did post on the Bank of Canada talking about their credibility on inflation and the reason why credibility is important is because