Yoruk Bahceli
(Reuters) – European shares jumped and government bond yields fell on Monday as investors looked ahead to interest rate cuts from the European Central Bank, while U.S. jobs data due this week focused exclusively on inflation .
The pan-European STOXX index rose 0.4%, while US stock futures also rose.
In bond markets, bond yields fell 5 basis points to 4.47% and German bond yields, which hit a six-month high last week, also fell.
All eyes were on the ECB, which is believed to be almost certain to cut rates by a quarter of a point to 3.75% on Thursday.
But unexpectedly high eurozone inflation figures released last week have further weakened the case for a quick round of cuts. Markets are now pricing in easing of less than 60 basis points, meaning two cuts of 25 basis points and a third cut less than 50% likely.
“There is a relatively positive risk tone to start the week, which appears to be a continuation of the positive momentum seen on Friday, although this is somewhat surprising given the rich calendar of events ahead,” said Michael Brown, strategist at brokerage Pepperstone in London. .
China’s manufacturing activity grew at its fastest pace in about two years in May, data showed on Monday. That added to optimism prevailing in markets after Friday’s data showed the US Federal Reserve’s preferred inflation gauge remained stable in April.
“The ECB’s decision is perhaps the most important development to watch, especially after last week’s inflation data raises hawkish risk that there will only be one more rate cut this year after Thursday’s 25bp cut. ” said Brown.
Markets also suggest there is about an 80% chance that the Bank of Canada will cut rates at its meeting on Wednesday, easing rates by about 60 basis points this year, although analysts hope the easing will be even deeper.
Investors are much less dovish toward the Fed, seeing little prospect of such action before September, although the chances of such action have increased following the release of Friday’s inflation data. They estimate the likelihood of a second contraction by December to be less than 60%.
The outlook could change this week, with data including key surveys of manufacturing on Monday, services on Wednesday and the May jobs report on Friday, in which the unemployment rate is forecast to remain at 3.9% as , 190,000 new jobs are projected to be created.
In Europe, attention was also drawn to the downgrade of France’s credit rating by Standard & Poor’s, but the country’s bonds showed little reaction.
POWER OF ASIA
Currency markets saw the US dollar start June on a firm footing, most recently flat against a basket of peers after it reported its first monthly fall of 2024 in May.
The euro fell 0.1% against the dollar to $1.0841.
The yen, the year’s worst-performing G10 currency hit by the Bank of Japan’s low interest rates, rose 0.3% against the dollar to 156.83 after hitting a four-week low of 157.715 last week.
Emerging markets have been in the spotlight following elections in India and Mexico.
The Indian rupee strengthened and its stock market rose to a record high, boosted by expectations of robust economic growth as Prime Minister Narendra Modi looks set to win a third term.
The Mexican peso, however, fell 3% as markets feared Claudia Sheinbaum’s landslide victory could lead to constitutional changes.
Earlier, Asian shares rose on the back of strong data from China, as well as data from Japan and South Korea.
Gold rose 0.1% to $2,330 an ounce, now boosted by four straight months of gains, thanks in part to buying from central banks and China. [GOL/]
European prices rose more than 8% to their highest level this year at more than €37/MWh as power outages in Norway, which overtook Russia as Europe’s biggest gas supplier in 2022, led to a sharp decline in exports on Monday .
Oil prices are fluctuating after OPEC+ agreed on Sunday to extend most oil production cuts until 2025, although some cuts will begin to be reversed from October 2024. [O/R]
The price was last up 0.2% at $81.24 a barrel, while the price was up 0.1% at $77.04 a barrel.
($1 = 157.1900 yen)