The European Central Bank (ECB), as expected by the market, cut interest rates for the first time in nearly five years, citing “clearly improved” inflation prospects. However, it raised its inflation forecast for this year and next, stating that it will keep policy rates restrictive “as long as necessary.” ECB President Lagarde expressed uncertainty about the future path and timing, suggesting that the road to further rate cuts in the coming months might be bumpy. Reports indicate that ECB officials almost completely ruled out the possibility of further rate cuts in July, and some questioned the wisdom of a rate cut in September.
Commentators noted that the ECB’s move was dovish, emphasizing the need for caution in future decisions and not signaling any immediate action. Following the ECB meeting, investors reduced bets on a rate cut in July, with the market now pricing in the next rate cut in December instead of October as previously expected. The euro surged, approaching the two-month high set on Tuesday, leading to a swift decline in the US dollar index. Eurozone government bond prices fell further, German bund yields widened, and global bond prices overall retreated, ending a five-day rally in bond markets.
This Friday, the May US nonfarm payroll report will be released. Analysts expect profit-taking by US bond investors ahead of the release. Therefore, the decline in US bond prices on Thursday was not surprising. However, the unexpectedly high weekly initial jobless claims further climbed to a four-week high, indicating ongoing cooling in the labor market, which is seen as positive news for potential rate cuts by the Federal Reserve later this year. Following the data release, the yield on the rate-sensitive two-year US Treasury note turned lower, approaching the lows seen more than three weeks ago after the April US CPI cooled.
US stocks saw limited gains on Thursday, with both the S&P and Nasdaq turning lower after hitting intraday record highs. Reports suggest that US government agencies will investigate the impact of Microsoft, OpenAI, and Nvidia on the AI industry, focusing on their behavior rather than mergers. Nvidia plummeted intraday, falling nearly 6% from its earlier record high, just a day after surpassing Apple to become the world’s second-largest market-cap stock. Retail investor “leader” Keith Gill will host a live stream on YouTube on Friday, causing a surge in GameStop shares, which rose by as much as 50% during trading.
Tech giants’ market capitalization overview: Nvidia surpassed Apple on Wednesday to become the second-highest market-cap stock after Microsoft, but on Thursday, it was surpassed by Apple again.
In the commodity market, as the US dollar weakened, London base metals rebounded, with copper rising more than 2%, reclaiming the $10,000 level for the first time in three days. This came after further evidence of cooling in the labor market, reinforcing expectations of a Fed rate cut in September. Following the data release, precious metals gold and silver rose, with New York spot gold quickly rebounding from its daily lows after the ECB meeting and hitting daily highs. New York silver futures rose by over 4%, and Shanghai silver night futures also rose by over 4%.
International crude oil continued its rebound, moving further away from a four-month low and erasing most of the losses for the week. This was supported by the ECB’s rate cut, recent data fueling expectations of a Fed rate cut in September, and comments from OPEC+ officials trying to ease concerns about the voluntary production cuts starting in October. Saudi Energy Minister Salman said on Thursday that if OPEC+ judges the market as not strong enough, it could pause or even cancel the production increase plan. Russian Deputy Prime Minister Novak said that if necessary, OPEC+ may adjust the agreement, attributing the recent oil price drop to market misunderstandings of the agreement and speculative behavior.
