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ECB rate cuts and US jobs data key in deciding market trajectory

June 3, 2024

Key points:

  • ECB Rate Cut sees possible 25 basis point reduction with future signals being key.
  • In the US, NFP release on Friday could prompt re-pricing of US interest rate cuts.

The European Central Bank (ECB) is set to cut interest rates by 25 basis points on Thursday. This decision has been highly anticipated by market participants who are now focusing on the potential timing for the next cut, which is predicted to occur either on September 12th or more likely on October 17th.

ECB President Christine Lagarde’s statements on future monetary policy will be the highlight, as they will provide essential clues about subsequent rate cuts. The post-decision press conference will be closely monitored for any signals that might influence market movements.

In the US, the jobs week will conclude with the Non-Farm Payrolls (NFP) report on Friday. Before this, important data releases include the Job Openings and Labor Turnover Survey (JOLTS), the ADP employment report, and initial jobless claims.

High inflation has led to a postponement in market expectations for US rate cuts. However, any signs of weakening in the US job market could prompt a re-pricing of these cuts, thereby reshaping market expectations.

Other key economic reports are also on the horizon. The Bank of Canada’s policy decision and the Australian GDP release are significant events this week. Additionally, the US ISM Services data will be closely scrutinized for indications of economic health and activity.

Market movements in early June

The US Dollar (USD) is currently under pressure, nearing a two-month low, with the USD index testing the 200-day simple moving average. If the index breaks below this level, it could see the USD trading below 104.00, which is a key psychological threshold.

In parallel, gold prices remain vulnerable to a move lower, influenced by the rise in US Treasury yields. The target level for gold prices is set at $2,280 per ounce. The outcome of Friday’s NFP report will be important in determining gold’s future performance.

SEE: Gold (XAUUSD) showing signs of being oversold on the VT Markets app.

The Nasdaq 100 has turned lower, influenced by the performance of its major constituents, the Magnificent Seven.

The index experienced a pullback from a sharp early sell-off, and Friday’s price action will be pivotal for any potential recovery. The index remains vulnerable due to its concentration in a few mega-cap companies.

Stock market performance

In the broader stock market, the Nasdaq Composite (IXIC) has remained nearly flat over the past five trading sessions, while the S&P 500 (GSPC) has risen by less than 0.2%. The Dow Jones Industrial Average (DJI) has dropped nearly 1%.

You may be interested: Nasdaq index soars as tech stocks continue to rally

Stocks stumbled at the end of May as trader enthusiasm for artificial intelligence paused. Concerns over the Federal Reserve holding interest rates higher for longer have added to the market’s cautious stance.

Looking ahead, May’s Jobs Report, set for release on Friday, will be an important indicator. Other important data include job openings and private wage growth updates, along with readings on the services and manufacturing sectors.

Corporate earnings reports from companies such as CrowdStrike (CRWD), Lululemon (LULU), and Dollar Tree (DLTR) will also capture traders’ attention.

The PCE index update for April showed a 0.2% increase from the prior month, marking the lowest monthly increase in 2024. Despite this better news on inflation compared to the first quarter, traders’ expectations for interest rate cuts remain unchanged.

Federal Reserve officials have indicated that they need “greater confidence” in inflation’s decline before they can justify cutting rates.

Labour market expectations

The May Jobs Report is forecasted to add 185,000 nonfarm payroll jobs, with the unemployment rate expected to hold steady at 3.9%. In April, 175,000 jobs were added, with an unemployment rate of 3.9%.

Trader sentiment will be tested with the upcoming labor market data, with a key focus on how these numbers will influence the Federal Reserve’s interest rate decisions.

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