LONDON – European stock markets rose on Wednesday, supported by traders on the eve of an expected interest rate cut by the European Central Bank, while Asia fell on renewed concerns about the U.S. economy.London, Paris and Frankfurt rose as the ECB is expected to start cutting euro zone borrowing costs from record levels on Thursday, but the move is unlikely to trigger a rapid easing cycle with inflation remaining elevated.
Lower interest rates tend to boost stock prices as they reduce lending costs for businesses and individuals and stimulate investment, consumer spending and economic activity.However, Asian indexes fell as optimism that the U.S. Federal Reserve will cut interest rates by the end of the year was overshadowed by renewed concerns about the health of the world's largest economy.”The ECB announcement on Thursday is likely to be the main event of the week,” said Matthew Ryan, head of market strategy at global financial services firm Ebury.
“We think an initial 25 basis points cut is essentially certain,” he added. “We expect the ECB to maintain a data-dependent approach and wait for confirmation of a downward trend in inflation before cutting rates further, which could lead to a relatively muted financial market reaction.” Wall Street was rising on Tuesday despite a weaker-than-expected job numbers and signs of a softening labor market, a day after a big downturn in factory activity, suggesting that a long period of high inflation and borrowing costs is hurting the U.S. economy. Job openings rose much more than expected in April, falling below 8.1 million, the lowest level since 2021, Briefing.com said.
The figures, released ahead of Friday's release of the closely watched nonfarm payrolls report, will give the U.S. central bank a much clearer picture ahead of its policy decision next week. The weaker-than-expected figures have been viewed positively for some time, as they are seen as a sign that the economy is still very healthy but has slowed enough to give the Fed room to start cutting interest rates — a “Goldilocks” situation.
Expectations are growing that the Fed will cut interest rates by the end of the year, with some seeing September as a target for when cuts can begin.In Asia, stocks in Mumbai rose more than 2% after plummeting on Tuesday when Indian Prime Minister Narendra Modi appeared unlikely to win as big an election victory as expected. Exit polls on Monday had him looking certain to win a landslide victory, but as vote counting progressed it became clear he had lost his majority and would have to form a coalition government.Oil prices rose on Wednesday after a recent sharp drop as investors continued to digest the decision by OPEC+, a coalition of major oil producers, to begin tapering production cuts from October through next year.
