World's Largest Hedge Fund Expects More QE from the Fed

01/21/2016 9:40 am EST

Focus: MARKETS

Michael Berger

President & Founder, Technical420.com

While Michael Berger, of Technical420.com, stated previously that he expected to see the Federal Reserve raise interest rates by 25 basis points in their March and June meetings, now he shares why he no longer thinks this will happen and expects more QE instead.

The United States stock market rallied off of its lows Wednesday and futures are no longer trading in negative territory Thursday morning. Wednesday's move lower caused the iShares MSCI All-Country World Index (ACWI), which is used as a gauge of global equities, to enter a bear market (down more than 20% from its peak on May 21, 2015).

The weakness Thursday morning came after a rally in Asian stocks reversed course. In an attempt to stem losses, the People's Bank of China injected the most cash into its financial system through open-market operations since 2013. The cash injection failed to ease concerns about a worsening economic slowdown and China's Shanghai Composite Index ended the day down 3.2%.

European shares are trading slightly higher Thursday morning after the region saw its largest dip since August on Wednesday. Thursday, the European Central Bank will meet and they are the first major monetary authority to review interest rates and policy since the start of the year.

Oil Continues to Move Lower

Brent crude oil continues to move lower after closing at its lowest level in more than 12 years Wednesday. Last week, the American Petroleum Institute said that oil stockpiles in the United States expanded by 4.6 million barrels during the week that ended on January 15. Their estimate is almost 60% higher than Wall Street's expectations. If the American Petroleum Institute is correct, oil will continue to trade lower.

Thursday, the United States Energy Information Administration (EIA) will release its official data on this statistic. Analysts polled by pricing agency Platts (according to the Wall Street Journal) estimates an increase of 2.9 million barrels. The EIA expects to announce an increase of 2.2 million barrels.

Expect Quantitative Easing, Not an Interest Rate Hike

Ray Dalio is founder of Bridgewater Associates which is the largest hedge fund in the world. In an interview with CNBC from the World Economic Forum in Davos, Dalio said, "Global markets face risks to the downside as economies near the end of a long-term debt cycle. The Federal Reserve's next move will be toward quantitative easing, rather than monetary tightening."

Dalio also said that further quantitative easing would not be easy because interest rates are already low. Earlier this year, we said that we expect to see the Federal Reserve raise interest rates by 25 basis points in their March and June meetings. We no longer expect to see this happen because China continues to devalue its currency and this is impacting the rest of the world.

Michael Berger, Founder and President, Technical420.com

Related Articles on MARKETS