Written by Mark Jones and Koh Gui Cheng
NEW YORK/LONDON (Reuters) – Global stocks hit all-time highs and the euro rose on Thursday after the European Central Bank cut interest rates for the first time in nearly five years, while signaling that further moves may take some time.
Policymakers at the European Central Bank cut interest rates by a quarter point to 3.75%, but markets felt a bit deflated after the bank said it now does not expect inflation to fall back to target until 2026.
The comments were enough to trim pan-European gains to 0.7%, while the euro rose to nearly $1.0890 against the dollar and government bond yields – which reflect borrowing costs and move inversely with the price – also rose.
The main MSCI world index, which includes 47 countries, rose as much as 0.3%, before paring its gains slightly. However, Wall Street went the other way, falling 0.2% after hitting an all-time high. The index was flat, and the index fell 0.3%, also retreating from its all-time high.
Chipmaker Nvidia's stock (NASDAQ:) fell 2.4% after hitting a record high, a day after its market cap surpassed $3 trillion.
Markets will now focus on whether the US Federal Reserve will cut interest rates in September, said Marshal Alexandrovich, partner at Saltmarsh Economics.
The euro, after rising 2% over the past month, rose to $1.0887, although most traders were idle. “We are not pre-committed to a specific price path,” ECB President Christine Lagarde stressed at the beginning of her post-meeting press conference.
Stronger-than-expected data over the past few weeks, combined with Thursday's increase in the European Central Bank's internal inflation forecast, has raised doubts about how many interest rate cuts will be justified this year.
“This was a cautious cut,” said Samuel Ziff, head of global FX strategy at JPMorgan Private Bank. “We currently think September could be next. But (there is) no reason to expect significant cuts anytime soon with growth actually picking up recently.”
Goldilocks story
The Bank of Canada overtook the European Central Bank to become the first G7 country to cut interest rates this session on Wednesday. The US Federal Reserve meets next week, although it is not expected to act until September, at the earliest.
“This move by the Fed would not have been clear at all just three months ago,” said Eric Vanreese, head of fixed income at Eric Sturdza Investments. “We still believe the first rate cut will come before the fourth quarter, in September.”
By contrast, the discussion at the Bank of Japan, which meets the following week, will revolve around whether and when to raise interest rates.
The Canadian dollar pared some of its losses after falling on Thursday to 1.37 Canadian dollars per US dollar.
In bond markets, the two-year German government bond yield, which is sensitive to interest rate expectations, rose to 3.037%. It reached 3.125% last Friday, its highest level since mid-November.
US 10-year Treasury yields settled at 4.2851%, although they are still near two-month lows, after data this week indicated that the US labor market is finally starting to slow.
The data included US private sector payrolls on Wednesday and a report released on Tuesday that showed job openings fell in April to their lowest levels in more than three years.
Markets are now pricing in Fed cuts of about a quarter point again this year, with the September move seen as a 68% chance compared to 47.5% last week.
“We are still in the Goldilocks range, so the bad economic news has been good for stocks, as Fed rate cuts are back on the table,” said Ben Bennett, Asia-Pacific investment strategist at Legal and General Investment Management.
Investors' attention will soon turn to the US non-farm payrolls report for May on Friday, with a Reuters poll of economists expecting payrolls to rise by 185,000 jobs.
“We need it to be in the 100-150,000 range to maintain the moderate narrative,” Bennett said. “Much higher and yields could rise again, but if we get to zero or negative, we could be talking about a sharp decline again.”
In commodities, futures rose as much as 2% to $79.97 a barrel, while US West Texas Intermediate crude futures rose 2.1% to $76.65. (or)
Gold gained 0.7 percent to $2,371.1 per ounce after previously rising one percent, while the cryptocurrency Bitcoin reached $71,415, falling toward the record high level recorded in March. (GOL/) (This story has been corrected to remove references to a record level, in the headline and paragraph 4)
