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.
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.
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.
Oil traders encouraged by Saudi output cut confidence
Oil prices have been given a lift in recent days, with various factors feeding into the gains. Whether that’s the improved overall risk appetite in the markets, US/Mexico developments or an acknowledgement from the Saudi oil minister that an extension to the output cut is almost guaranteed, the news is bullish for oil prices. It also comes at a time when oil prices needed some good news, having fallen more than 15% over the course of a couple of weeks.
This likely contributed strongly to Khalid al-Falih’s confidence in a deal, with reports previously indicating that Russia was less enthused about the idea. Of course, price is a major factor in this and the rapid decline may have quickly changed that. This also comes at a time when the US is setting new records on output, which will be frustrating members of the cartel and its new allies but at the same time reinforces the need for the cuts as price would otherwise be substantially lower