US stocks are off to a good start after positive comments from China’s Ministry of Commerce reiteration that the US-China trade dispute should be solved via dialogue and based upon mutual trust. Equities have been supported by some optimism on the trade front and growing expectations the Fed will come to the rescue and deliver a couple rate cuts this year. No material progress was made with trade talks, but not seeing additional fallout was good enough of a reason to provide a bid for risk appetite.
The focus in the Americas falls on Fed Chair Jerome Powell’s comments at the Fed conference on policy strategy. Powell will provide his first comments since the recent escalation in trade with both China and Mexico. Markets are currently pricing in only a 10% chance of a rate cut at the June 19th meeting and have the July 31st meeting as a coin flip.
AUD – RBA cuts and says not unreasonable to expect another rate cut
Oil – Crude weakness underpinned on trade uncertainty
Gold – Slightly softer on easing of trade tensions
The Australia Central Bank (RBA) delivered the first rate cut since 2016 last night and Governor Lowe signaled he could cut again to drive down unemployment and drive inflation. Lowe noted that the recent escalation in global trade disputes provided the biggest risks to the economy. The RBA may need to take rates below 1%, but domestic outlook would have to look a lot worse. The RBA followed the RBNZ and now the focus will come to the Fed to see if they will succumb to rate cuts.
Crude prices remain under pressure falling global demand outweigh any optimism that OPEC + will deliver another round of production cuts at their next meeting. West Texas Intermediate crude is now in bear market territory and weakness could accelerate if OPEC and allies are unable to find an agreement on extending curbs.
Gold prices are modestly down as trade tensions ease, but should remain fairly supported as a soft dollar bets increase as markets are now pricing in two 25 basis point Fed rate cuts by the end of the year.
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