The Bank of Canada has started a cycle of rate cuts. Today the same step is expected from the ECB :: InvestMacro

By JustMarkets

On Wednesday, the Dow Jones (US30) rose 0.25%, while the S&P 500 (US500) rose 1.18%. The NASDAQ Technology Index (US100) closed yesterday at a positive 1.96%. Stock indices rose on Wednesday, with the S&P 500 and Nasdaq 100 setting new all-time highs and the Dow Jones Industrials rising to a 1-week high. The strength in chip maker stocks on Wednesday led tech stocks higher and was a positive for the broader market. Shares of Nvidia (NVDA) surged 5% to a record high, surpassing a market value of $3 trillion, after briefly outperforming Apple (AAPL) during the intraday session. Additionally, technology stocks were supported by some positive corporate news on Wednesday, with Hewlett Packard Enterprise (HPQ) reporting better-than-expected second-quarter earnings.

Friday will see the release of the monthly US payrolls report for May, looking for clues about the labor market’s strength that will prompt when the Federal Reserve could start cutting interest rates. The consensus expects non-farm payrolls for May to increase by 190,000 and the unemployment rate to remain at 3.9%.

The Canadian dollar weakened past 1.37 per dollar, hitting one-month lows, as investors assessed the Bank of Canada’s latest rate decision. The Bank of Canada cut its key interest rate by 25 basis points to 4.75% at its June meeting, marking a departure from 11 consecutive months of the highest interest rates in the tightening cycle as expected. The decision was reinforced by recent data pointing to continued disinflation towards the target level, prompting the central bank to adopt a less stringent policy stance. The decision was also influenced by lower-than-expected GDP growth in the first quarter and a softer labor market.

Equity markets in Europe mostly rose yesterday. Germany’s DAX (DE40) added 0.93%, France’s CAC 40 (FR40) closed higher by 0.87%, Spain’s IBEX 35 (ES35) rose by 0.59%, and the UK’s FTSE 100 (UK100) closed positive 0.18% on Wednesday. European stocks extended early gains, recovering from losses in the previous session, as markets anticipated improved credit conditions in the eurozone ahead of the ECB’s decision.

The European Central Bank (ECB) will hold a monetary policy meeting today. With almost a 100 percent probability, the ECB will cut the rate by 0.25%. With a 25 basis point rate cut already virtually promised by policymakers, market watchers will focus on what ECB President Christine Lagarde says. Ms. Lagarde will likely say that future rate cuts will be “data dependent.” But in a news release, the euro could rise because the latest wage data could boost inflation going forward, and Lagarde will mention that.

WTI crude oil prices rose 1.1% on Wednesday, breaking a five-day losing streak. That rise was fueled by optimism about a possible Fed rate cut in September, which outweighed a rise in US oil and fuel inventories. There is a 69% chance that the Fed will lower borrowing costs in September, which could stimulate economic activity and boost oil demand. EIA data showed that US crude inventories rose by 1.233 million barrels last week, a reversal after a 4.156 million barrel decline the previous week and contrary to market expectations for a 2.3 million barrel decline.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was down 0.89%, China’s FTSE China A50 (CHA50) added 0.44%, Hong Kong’s Hang Seng (HK50) decreased by 0.10% and Australia’s ASX 200 (AU200) was positive 0.41%.

Board member Toyoaki Nakamura said in a speech that the Bank of Japan should maintain its current monetary policy settings as the impact of wage growth on inflation remains weak. Nakamura was one of two dissenters when the board voted to remove the negative interest rate in March and implemented the first rate hike in 17 years.

S&P 500 (US500) 5,354.03 +62.69 (+1.18%)

Dow Jones (US30) 38,807.33 +96.04 (+0.25%)

DAX (DE40) 18,575.94 +170.30 (+0.93%)

FTSE 100 (UK100) 8,246.95 +14.91 (+0.18%)

USD Index 104.32 +0.21 (+0.20%)

Important events today:

• – Australia Trade Balance (m/m) at 04:30 (GMT+3);
• – Switzerland Unemployment Rate (m/m) at 08:45 (GMT+3);
• – Eurozone Retail Sales (m/m) at 12:00 (GMT+3);
• – Eurozone ECB Interest Rate Decision at 15:15 (GMT+3);
• – Eurozone ECB Rate Statement at 15:15 (GMT+3);
• – US Trade Balance (m/m) at 15:30 (GMT+3);
• – Canada Trade Balance (m/m) at 15:30 (GMT+3);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
• – Eurozone ECB Press Conference at 15:45 (GMT+3);
• – Canada Ivey PMI (m/m) at 17:00 (GMT+3);
• – US Natural Gas Storage (w/w) at 17:30 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.