June 6, 2024

“Today’s spotlight is on the ECB Governing Council meeting, carrying event risk for the euro. Expectations point to a 25bps interest rate cut, easing monetary policy. However, with the initial cut widely anticipated, attention shifts to clues about future cuts.”

Tim Hallinan – Trading Director

Main Headlines

The ECB is expected to cut interest rates today, ahead of the US Federal Reserve, positioning the eurozone as the first major economy to reduce borrowing costs for businesses and consumers amid receding inflation post-Russia’s invasion of Ukraine. Christine Lagarde and other officials have signalled a probable quarter-point reduction from the current 4% rate when the governing council meets in Frankfurt, Germany. Last month, Lagarde expressed confidence in having inflation under control within the eurozone, comprising 20 EU countries using the euro, reinforcing analysts’ expectations of an imminent rate cut.

Rishi Sunak reiterated his warning that a Labour victory in the upcoming election would result in over £2,000 in higher taxes for the average working household, prompting Labour leader Sir Keir Starmer to call him a liar. Following Starmer’s failure to contest the figure, Labour frontbenchers launched a vigorous counterattack. Despite this, Sunak maintained his stance, with Conservative strategists planning to make this warning a focal point of their election campaign.

GBP

Sterling is weaker than most major currencies in the early morning trade. Rishi Sunak’s promise to limit immigration may conflict with the Bank of England’s inflation control efforts. Sunak’s re-election bid includes a strict annual visa cap, which economists warn could hinder workforce growth, potentially leading to wage and price increases. UK fund managers have expressed concerns over supporting Shein’s potential IPO in London due to allegations of worker mistreatment.

EUR

The Euro is well bid against most major currencies this morning. European stock markets rose on Thursday morning in anticipation of a predicted interest rate cut by the ECB. BNP Paribas and Numeral have partnered to enhance SEPA payment integration, and voting has begun in the Netherlands for the new European Parliament, with a notable rise expected for far-right parties.

USD

The dollar is stronger against sterling and weaker against the euro this morning. Nvidia’s market value surpassed $3 trillion, overtaking Apple to become the world’s second most valuable company, driven by high demand for its AI chips. Nvidia’s shares increased by about 5%, ending the day with a market capitalization of $3.01 trillion, slightly ahead of Apple’s $3 trillion. The US proposes a $50 billion loan to Ukraine, backed by profits from frozen Russian assets, contingent on the EU extending sanctions against Russia indefinitely. The EU’s sanctions, needing unanimous consent for renewal every six months, would require approval from leaders like Hungary’s Viktor Orbán, who has frequently exercised his veto power on such decisions.

Markets

European stocks looked set to rise ahead of a widely expected interest rate cut by the European Central Bank as markets reassessed bets of policy easing this year. A Bloomberg index of global government bonds rose for a fifth straight session on Wednesday, its best performance since December, as traders ramped up rate-cut bets from the US to Australia. The dollar retreated as policymakers in Canada reduced borrowing costs Wednesday, increasing the focus on the US rate path.

Main Economic Events (All Times CET)

8:00 a.m.: Germany April Factory Orders
9:30 a.m.: Germany May HCOB Construction PMI
10:00 a.m.: Italy April Retail Sales
10:30 a.m.: S&P Global UK May Construction PMI
10:30 a.m.: BOE Decision Maker Panel survey
2:15 p.m.: ECB Rate Decision
2:45 p.m.: ECB’s Lagarde speaks at press conference
2:30 p.m.: US Initial Jobless Claims
2:30 p.m.: US April Trade Balance
3:00 p.m.: Polish Central Bank Governor Glapinski holds press conference

To learn more about Ballinger Group, please visit our website or our LinkedIn page.