Yoruk Bahceli
(Reuters) – European shares jumped and government bond yields fell on Monday as investors looked ahead to interest rate cuts by the European Central Bank (ECB) while U.S. jobs data focused exclusively on inflation.
By 0850 GMT, the pan-European STOXX index was up 0.6%, while US stock futures were also higher.
In bond markets, bond yields fell 4 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 seen as almost certain to cut rates by a quarter point to 3.75% on Thursday, making it the first major central bank to cut rates this cycle.
But last week’s unexpectedly high eurozone inflation figures 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. “Brown added.
Markets also suggest there is about an 80% chance of a Bank of Canada rate cut at Wednesday’s meeting and about 60 basis points of easing 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 only a 50% chance of a second contraction by December.
The outlook could change this week, given that data to be released includes key surveys of the services and manufacturing sectors, as well as the May jobs report, which expects unemployment to remain at 3.9% as 190,000 new workers are added places
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
In currency markets, the US dollar started June higher, rising 0.1% against a basket of peers after reporting its first monthly fall of 2024 in May.
The euro fell slightly against the dollar to $1.0838.
The yen, the year’s worst-performing G10 currency hit by the Bank of Japan’s low interest rates, rose against the dollar to 157.040 but was close to last week’s four-week low of 157.715.
Emerging markets were in focus, with the Indian rupee strengthening and the Mexican peso weakening following general election exit polls in both countries.
Asian shares rose on strong data from China, as well as data from Japan and South Korea, while Indian shares hit record highs.
Gold remained steady at $2.327 an ounce, with four straight months of gains helped in part by buying from central banks and China. [GOL/]
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]
was last up 0.3% at $81.35 a barrel, while the price rose similarly to $77.21 a barrel.
($1 = 157.1900 yen)