Europe markets retreat ahead of central bank meetings


European markets did not continue the rally that began in Asian markets as investors looked to central bank meetings in Europe and the U.S.

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U.S. President Donald Trump gave fresh hope to investors as he announced on Twitter that he would meet Chinese President Xi Jinping at the G-20 summit next week in Osaka, Japan. Trade negotiations had been stalled since mid-May after the U.S. accused China of reneging on aspects of the deal that had already been agreed, with China firing back in state media.

The U.S. Federal Reserve and the European Central Bank will both make announcements about policy Wednesday, and while investors will be eagerly awaiting both, those in Europe are already digesting ECB President Mario Draghi’s speech Tuesday signalling the bank stands ready to introduce fresh stimulus measures if economic conditions do not improve. The outlook for the Fed is more ambiguous, and the week has seen intense debate about whether it will signal cuts to its policy rate. While a survey of brokers by FactSet sees the Fed introducing cuts at this meeting, some think it more likely the central bank will keep its powder dry ahead of the G-20 summit.

RBC Capital Markets analysts wrote: “We find it hard to believe that the Fed would cut rates if all of a sudden there were a de-escalation of tensions with China and equities were trading at all-time highs come the July confab. But a deterioration in trade dealings would also increase the risk that the Fed’s economic growth profile for the second half of 2019 gets a downgrade and the risk that financial conditions deteriorate.”

In economic data, U.K. inflation came in slightly above expectations. CPI core inflation for May was 1.7% higher year over year, versus 1.6% expected. In Germany, PPI inflation missed the consensus, rising 1.9% in May year over year, short of the 2.1% expected.

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Russ Mould, investment director at AJ Bell, wrote: “Saga is having a hard job digging itself out of a massive hole. Having issued several profit warnings in the past few years, changed its insurance strategy, and announced plans to part ways with its chief executive, the business has come back with a patchy trading update. In its defence, the turnaround plan is still fairly new and it will take time to see if the strategy works.”