European update – Risk appetite buoyed by Powell

Stocks edge higher again

Stock markets are edging higher again on Wednesday, although gains are far more modest than the rebound we saw a day earlier after Fed Chair Jerome Powell opened the door to a rate cut.

Source – Thomson Reuters Eikon

While Powell’s comments weren’t quite as dovish as Bullard’s a day earlier and didn’t suggest any change was imminent, they quite clearly intentionally didn’t dispel the suggestion that a rate cut is on the horizon either. As far as traders are concerned, that’s clearly as good as a confirmation, although June is still viewed as a long shot with markets pricing in only an 18% chance of a cut.

It may be the case that 19th June is viewed as coming too soon but that could change if we get a bad jobs report on Friday, something that may justify the case for a cut in the eyes of some policy makers. Ultimately, the trade war remains the greatest risk factor in many people’s eyes though which makes the G20 meeting all the more important, not to mention how the data performs in the interim.

I’m sure views would change if talks between Trump and Xi this month are positive and the data holds up but as ever, there’s a lot of if’s and buts in there. The Fed will likely want to hold off as long as possible to avoid talk of policy mistakes in December, when they rather oddly decided to raise interest rates for a fourth time in 12 months, rather than hold off during a period of significant instability in the markets.

Economic Calendar

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.