Markets React to US-China Trade Deal Progress, Eyeing US Inflation Rate
The German Dax index remained largely unchanged on Wednesday, with a slight 0.3% gain to around 24,060 points by midday, building on a cautious start to the trading day.
The market has been anticipating a trade deal between the US and China and a breakthrough was reportedly achieved in London on Tuesday, with the leaders of the two nations still needed to give their approval. The details of the agreement are not yet public, but one key point is expected to be the sale of rare earth minerals to the US, according to Thomas Altmann of QC Partners.
The stock markets had already pre-empted the news and the outcome may not necessarily lead to a significant market surge. As Altmann noted, “buy the rumour, sell the fact” is a common phenomenon in the market, where investors buy in anticipation of a deal and then sell once the news is confirmed.
The main event of the day is expected to be the US inflation rate for May, with the market anticipating a slight increase after three consecutive declines. If the rate remains above the Federal Reserve’s 2% target, it could impact the likelihood of a rate cut in October and potentially lead to a re-evaluation of previously priced-in rate cuts for the year.
The Dax has been under pressure, having given up ground for three days in a row, with the current price-to-earnings ratio (KGV) of over four points above its historical average potentially deterring some investors from buying, according to Altmann.
Meanwhile, the euro was slightly stronger against the US dollar, with one euro costing around 1.1436 US dollars and the dollar equivalent of 0.8744 euros. The price of Brent crude oil, a North Sea variety, rose by 1.3% to 67.71 US dollars per barrel by midday.