European update – Stocks steady ahead of G20

Upcoming G20 meeting continues to dominate

Stock markets are trading slightly in the red on Tuesday but we’re not seeing any moves of real substance, as traders continue to focus on events later in the week.

Source – Thomson Reuters Eikon

It’s never ideal when the headline act is so late in the week as we can often spend the rest of it sitting idly by trying to feign interest in the supporting cast. Barring another flare up in the Gulf of Oman or another unexpected event, that is always how this week was likely to pan out and so far, that’s exactly what we’re seeing.

It doesn’t help that this G20 meeting has the potential to be a game changer. Clearly investors expectations are either quite low or they just don’t think it makes any difference to what interest rates will do on the back of it. As it stands, a US interest rate cut is 100% priced in for July, with markets pricing a 38% chance that it’s 50 basis points. Moreover, three rate cuts is more than 70% priced in by year-end.

Fed Interest Rate Probabilities

Source – Thomson Reuters Eikon

Should Trump and Xi surprise us all and find a compromise that both accelerates negotiations and averts the need for further tariffs in Osaka, I would be very surprised if these odds don’t change significantly. They seem far too pessimistic based on inflation and a slight weakening in the data, alone. I can’t imagine the consumer confidence or manufacturing data will change anything, although Powell and Bullard’s speeches later on may be interesting, especially if they signal that markets have gone too far.

Economic Calendar

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