US and European stock markets rose on Wednesday amid expectations of a rate cut from the European Central Bank, and US employment data stoked hopes that the Federal Reserve will soon follow suit.
New York's broad stock index, the S&P 500, and the tech-heavy Nasdaq both hit new highs, while chip designer Nvidia's market capitalization surpassed $3 trillion.
Nvidia became just the third U.S. company to reach that level of market capitalization, after Apple and Microsoft. The company's shares closed up 5.2%.
“For the stock market, it's the best of both worlds, with interest rates low and particularly large cap stocks like Nvidia doing well,” said Patrick O'Hare of Briefing.com.
U.S. economic data also showed private sector hiring cooled more than expected in May, with employers adding 152,000 jobs, according to payroll firm ADP.
Investors are concerned about the U.S. central bank keeping interest rates high for too long, but a softening labor market could give the Federal Reserve confidence to move more quickly to cut rates.
“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 drive down inflation and increase the likelihood that the Fed can start cutting rates later this year,” he added. “So, being bad is being good.”
The ADP figures come ahead of the release of closely watched U.S. government employment data on Friday and will provide a clearer picture for the Fed 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.
Brooks said the economic slowdown wasn't necessarily bad news, but rather indicated “a soft landing is beginning to be in sight.”
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%.
– Interest rate cuts looming –
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 kick off a rapid easing cycle.
“We expect the ECB to maintain its data-driven approach and wait to see further confirmation of a declining trend in inflation before cutting rates further,” 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 2025 GMT –
New York – Dow Jones Industrial Average: up 0.3 to 38,807.33 points (closing price).
New York – S&P 500: up 1.2% to 5,354.03 (close)
New York – Nasdaq: up 2.0% to 17,187.90 (closing price)
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 156.12 yen from 154.88 yen on Tuesday
EUR/USD: down from 1.0883 to 1.0873
Pound/dollar: up from $1.2772 to $1.2789
EUR/GBP: down from 85.19p to 85.00p
West Texas Intermediate: Up 1.1% to $74.07 a barrel
Brent crude: up 1.1% to $78.41 a barrel
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