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European update – Stocks extend winning run

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Markets buoyed by central banks and US/Mexico deal

We’re trading back in the green at the start of the week as central banks continue to provide comfort for investors and a border deal between the US and Mexico eases trade concerns.

Source – Thomson Reuters Eikon

While market expectations for interest rate cuts still seem a little overdone – probability of three Fed cuts this year has exceeded 50% – the perceived willingness of officials to engage in loosening after years of hikes has settled otherwise shaky markets. Markets have been on a good run for the last week and that looks set to continue at the start of this, which could further comfort investors who’s nerves may have been tested over the last nine months.

Fed Probability Distribution

The deal between the US and Mexico to avoid tariffs will naturally be helping to boost investor sentiment. While this wasn’t a tariff spat that had yet got underway, the risk was very real and could have escalated very quickly. Coming at a time when relations with China are already strained and massive tariffs have already been imposed, investors were understandably uneasy.

If the Trump team can make headway with China at the G20 later this month, investors will be far happier. Until then and in the event that the meeting this month is unsuccessful, the onus will be on the central banks to fill the void which would make cuts all the more likely.

Perhaps that’s why investors aren’t convinced about a rate cut this month – less than 20% priced in – as they believe it’s going to be highly influenced by the outcome of the Trump/Xi meeting.

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Former Craig

Former Craig

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
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