European stock market rally, eyes on ECB interest rate moves By Reuters

adminJune 3, 2024

Yoruk Bahceli

(Reuters) – European stocks rebounded on Monday as investors anticipated a rate cut from the European Central Bank (ECB), government bond yields fell and U.S. jobs data released this week focused on inflation.

The pan-European STOXX index rose 0.4% and U.S. stock futures also rose.

In the bond market, it fell 5bp to 4.47%, and German interest rates, which hit a six-month high last week, also fell.

All focus was on the ECB, which is considered almost certain to cut interest rates by a quarter of a point to 3.75% on Thursday.

But euro zone inflation rose alarmingly last week, further weakening the prospects for a sharp rate cut. The market is currently pricing in less than 60 basis points of relief. This means two 25bp cuts and a third cut is less than 50% likely.

“There is a relatively positive risk tone to start the week,” said Michael Brown, strategist at London-based broker Pepperstone. “It looks like the positive momentum seen on Friday will continue.” .

China’s factory activity in May grew at the fastest pace in nearly two years, data showed on Monday. That expanded the optimism prevailing in markets after Friday’s figures showed the U.S. Federal Reserve’s preferred measure of inflation held steady in April.

“The ECB’s decision is probably the most important thing to watch, especially after last week’s inflation data, which has raised the hawkish risk that there will be only one more cut this year after Thursday’s 25 basis point cut,” Brown said.

Markets also expect the Bank of Canada to cut rates at its Wednesday meeting around an 80 per cent chance and cut its easing benchmark by about 60 basis points this year, although analysts expect the easing to go much deeper.

Investors are much less dovish about the Fed, so little movement is expected until September, but the likelihood of a move increases after Friday’s inflation data. They estimate there is less than a 60% chance of a second cut by December.

The outlook could change this week as the data includes key surveys of manufacturing on Monday, services on Wednesday and the May payrolls report on Friday. The unemployment rate is expected to remain at 3.9%, with 190,000 net new jobs expected to be created.

In Europe, Standard & Poor’s (S&P) focused on downgrading France’s credit rating, but French bonds showed little response.

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In currency markets, the US dollar has been on steady ground since June and was flat against other currencies after recording its first monthly decline in 2024 in May.

The euro fell 0.1% against the dollar to $1.0841.

The yen, the worst-performing G10 currency this year, rose 0.3% against the dollar to 156.83 after reaching a four-week low of 157.715 last week due to lower Bank of Japan interest rates.

Emerging markets were in the spotlight after the elections in India and Mexico.

The Indian rupee strengthened and stock markets hit record highs, boosted by expectations of continued economic growth as Prime Minister Narendra Modi approaches a third term.

But the Mexican peso fell 3% on market concerns that Claudia Sheinbaum’s landslide victory could change the constitution.

Earlier, Asian stocks rose on the back of strong Chinese data, along with prints from Japan and South Korea.

Gold prices rose 0.1% to $2,330 an ounce, now on its fourth consecutive month of gains, helped in part by central bank and Chinese gold purchases. (goal/)

European prices rose more than 8% to this year’s highest of €37/MWh. Power outages in Norway led to a sharp decline in exports on Monday, with the country overtaking Russia as Europe’s biggest gas supplier in 2022.

Oil prices seesawed after OPEC+ agreed on Sunday to extend most oil production cuts until 2025, but some cuts will begin to be lifted in October 2024. (or)