The market still expects a rate cut from the Fed despite the truce in China-US

Even if the rise in the Dollar may suggest otherwise, the money markets are clear : the positive outcome of the meeting between Trump and Xi last Saturday, did not call into question the certainty of investors that the Fed will lower rates next month, as can be seen on the barometer of the Fed funds rate

It will take more than a few words and friendship between the american president Donald Trump and the chinese leader Xi Jinping to substantially reduce the rate cut expectations in the market.

Recall that the United States and China concluded Saturday a truce in their trade war, important from a symbolic point of view, but unimportant as regards the actual possibility of a trade agreement is sustainable between the two parties.

Indeed, the positive statements emanating from the G20 summit in Osaka reinforce for now the appetite for risk, but it is to be expected, the uncertainties on the differences of opinion still not resolved and the economic outlook are weighing on the investor sentiment to a more or less short term.

In recent weeks, financial markets have oscillated between optimism and gloom about the prospects for the global economy. This concern has prompted the Fed, the ECB and other central banks to discuss the possibility of interest rate cuts or other stimulus measures to offset the adverse effects of the trade war between the two largest economies in the world.

After meeting Xi, Trump said he would delay the imposition of 300 billion dollars in additional tariffs on chinese imports, a concession that Beijing had demanded to reopen negotiations.

Trump has also said he would ease restrictions on Huawei and would allow american companies to resume their sales through the largest chinese manufacturer of equipment it must not be forgotten that although the two parties return to the negotiating table, the u.s. tariff on about $ 250 billion of chinese imports, a large part of which came into force in may, would remain in force.

Since the failure of the trade negotiations last may 10, Trump has done to grow from 10 % to 25 % tariffs on $ 200 billion of chinese products.

In other words, significant barriers to Trade between the two largest economies in the world persist, and these barriers have not yet fully expressed their negative impact on the economy.

In the end, the meeting Trump-Xi last Saturday so does that rule out temporarily the prospect of an aggravation additional in the situation.

This is why the investors are reluctant to reduce their expectations of a rate cut from the Fed.

It is therefore once again on the economic publications that you will need to turn to, to continue to assess the impact of the tariffs already in place on the US economy in particular. In this framework, the ISM manufacturing index on Monday, at 16h, and the report to the NFP on the job US in the month of June to Friday shall be considered as two statistics critical to refine the market’s expectations.

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