European stocks climb on eve of expected eurozone rate cut

London   -   Europe’s equity markets climbed Wednesday with traders boosted on the eve of an expected interest-rate cut by the European Central Bank, but Asia slid on renewed US economic worries. London, Paris and Frankfurt rose, with the ECB forecast to start cutting eurozone borrowing costs from historic highs on Thursday, although sticky inflation means the move is unlikely to kickstart a rapidly easing cycle.

Falling interest rates tend to boost share prices because they cut loan costs for businesses and individuals, and so tend to stimulate investment, consumer spending and economic activity. Asian indices however declined as optimism that the US Federal Reserve would cut interest rates before the end of the year was eclipsed by resurfacing fears over the health of the world’s biggest economy. “Thursday’s ECB announcement is shaping up to be the main event this week,” said Matthew Ryan, head of market strategy at global financial services firm Ebury.

“We think that a first 25-basis-point cut remains essentially guaranteed,” he added. “We expect the ECB to maintain its data-dependent approach and await confirmation of the downtrend in inflation before committing to additional cuts. This could lead to a relatively muted response in financial markets.” Wall Street had pushed higher Tuesday, even as a below-forecast read on job openings indicated the labour market was showing signs of softening a day after a big downside miss on factory activity. That suggested a long-running period of high inflation and borrowing costs was taking its toll on the US economy. Job vacancies fell far more than expected in April, to below 8.1 million, which Briefing.com said was the lowest level since 2021.

The figures come ahead of closely watched non-farm payrolls figures due Friday, which will provide a much clearer snapshot for the US central bank ahead of its policy decision next week. Readings below forecasts have for some time been taken as a positive, because they were seen as pointing to an economy still in rude health but slowing enough to give the Fed room to start cutting rates — known as a “Goldilocks” situation.

Bets on a Fed rate cut before the end of the year have picked up, with some eyeing September as the lift-off point. In Asia, Mumbai stocks rose more than two percent after tanking Tuesday when it appeared that India’s Prime Minister Narendra Modi would not win as big an election victory as expected. Exit polls Monday suggested he was on course for a landslide, but as votes were counted it emerged that he had lost his majority and would have to rule with a coalition. Oil prices rose Wednesday after recent hefty losses, as investors continue to digest the OPEC+ alliance of major crude producers’ decision to begin winding back output cuts from October and through next year.

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