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European update – Stocks extend winning run

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.

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Source – Thomson Reuters Eikon [3]

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

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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.

Economic Calendar

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For a look at all of today’s economic events, check out our economic calendar [6].

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam [21]

Senior Currency Analyst at OANDA [22]
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.