U.S. and European stock markets rose on Wednesday amid expectations of a European Central Bank interest rate cut, while U.S. employment data bolstered hopes that the Federal Reserve would do the same in the coming months.
New York's broad S&P 500, tech-heavy Nasdaq and Dow were all rising around midday after data showed U.S. private sector job growth slowed again in May.
Employers added 152,000 jobs last month, according to payroll company ADP, down from a revised 188,000 in April and below analysts' expectations, due to a sharp decline in manufacturing.
Investors have been concerned about the Federal Reserve keeping interest rates high for too long, but a softening labor market could give the Fed the confidence to start cutting rates sooner than feared.
“If fewer people are working, that could lead to higher unemployment,” Sam Stovall, chief investment strategist at financial research firm CFRA, told AFP.
“That would keep inflation in check and increase the likelihood that the Fed can start cutting rates later this year,” he added. “So bad is good.”
The ADP figures come ahead of closely watched nonfarm payrolls data on Friday and will provide a clearer picture for the U.S. central bank ahead of its policy decision next week.
Kathleen Brooks, research director at trading platform XTB, said “bad economic news” was increasing the likelihood of the Fed cutting interest rates in September.
“A slowing economy is not a bad thing at this stage. While it does raise the prospect of rate cuts, it does not signal a recession, but rather suggests that a soft landing is in sight,” Brooks said.
While the Federal Reserve has yet to ease monetary policy, the Bank of Canada decided on Wednesday to cut its benchmark interest rate to 4.75%.
European markets ended higher in London, Paris and Frankfurt on expectations that the European Central Bank (ECB) will start to ease euro zone borrowing costs from record levels on Thursday.
Matthew Ryan, head of markets strategy at global financial services firm Ebury, said the ECB's decision “is likely to be the key event of the week.”
“I think the first 25 basis point cut is essentially a certainty,” he added.
However, with inflation remaining persistently persistent, this move is unlikely to trigger a rapid cycle of monetary easing by the ECB.
“We expect the ECB to maintain its data-dependent approach and wait to see confirmation of a declining trend in inflation before cutting rates further, which is likely to lead to a relatively muted financial market reaction,” Ryan said.
Asian stock indexes ended lower as renewed concerns about the health of the U.S. economy dampened optimism about a Fed interest rate cut.
A manufacturing index released on Monday showed that U.S. economic activity contracted for a second consecutive month in May, raising concerns about sustained economic weakness.
Official data on Tuesday showed the number of job openings fell to just under 8.1 million in April, down 300,000 from the previous month and well below market expectations.
This suggests that a long period of high inflation and borrowing costs is hurting the U.S. economy.
– Key figures around 1600 GMT –
New York – Dow Jones Industrial Average: up 0.2 points to 38,782.15 points
New York – S&P 500: up 0.7% to 5,328.50
New York – Nasdaq: up 1.3% to 17,076.23
London – FTSE 100: up 0.2% to 8,246.95 (close)
Paris – CAC 40: up 0.9% to 8,006.57 (close)
Frankfurt – DAX: up 0.9% to 18,575.94 (close)
EURO STOXX 50: up 1.7% to 5,035.66 (close)
Tokyo – Nikkei Stock Average: Down 0.9% to 38,490.17 (closing price)
Hong Kong – Hang Seng Index: down 0.1% to 18,424.96 (close)
Shanghai Composite Index: Down 0.1% to 3,087.56 (closing price)
Dollar/yen: Up to 156.21 yen from 154.88 yen on Tuesday
EUR/USD: down from 1.0883 to 1.0863
Pound/dollar: down from $1.2772 to $1.2768
EUR/GBP: down from 85.19p to 85.07p
West Texas Intermediate: Up 0.5% to $73.59 a barrel.
Brent crude: up 0.5% to $77.89 a barrel
Birds-lth/rlp
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