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GLOBAL MARKETS-European shares rally, eyeing ECB rate move
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GLOBAL MARKETS-European shares rally, eyeing ECB rate move
Jun 3, 2024 5:34 AM

*

ECB seen easing on Thursday, Canada may cut on Wednesday

*

US ISM surveys, May payrolls reports awaited

*

Focus on India, Mexico elections

*

Oil gains after OPEC+ cuts, European gas prices surge on

outage

(Updates at 1154 GMT)

By Yoruk Bahceli

June 3 (Reuters) - European stocks bounced and

government bond yields dropped on Monday as investors looked

forward to an interest rate cut from the European Central Bank,

while U.S. jobs data due this week kept the focus squarely on

inflation.

The pan-European STOXX index was up 0.4% and U.S.

stock futures also rose.

In bond markets, the U.S. 10-year Treasury yield

was down 5 basis points to 4.47% and German yields,

which touched six-month highs last week, also dropped.

All focus was on the ECB, which is considered almost certain

to trim rates by a quarter point to 3.75% on Thursday.

However, a surprisingly high reading for euro zone

inflation, out last week, further weakened the case for a rapid

round of reductions. Markets now price in fewer than 60 basis

points of easing now - meaning two 25-basis point cuts and less

than a 50% chance of a third.

"There's a relatively positive risk tone to start the week,

which seems like a continuation of the positive momentum seen on

Friday, albeit is somewhat surprising given the bumper calendar

of event risk coming up," said Michael Brown, strategist at

broker Pepperstone in London.

China's factory activity grew at the fastest pace in about

two years in May, data showed on Monday. That extended the

optimism prevailing in markets following Friday figures showing

the U.S. Federal Reserve's preferred measure of inflation held

steady in April.

"The ECB decision is perhaps the most important event to

watch, particularly after last week's inflation data which

raises the hawkish risk that there is only one more cut this

year after a 25bp reduction on Thursday," Brown said.

Markets also imply around an 80% chance the Bank of Canada

will cut rates at its meeting on Wednesday and around 60 basis

points of easing this year, though analysts are hopeful the

easing will be even deeper.

Investors are a lot less dovish on the Fed, seeing little

prospect of a move until September, though the odds of a move

then increased after Friday's inflation data. They price in less

than a 60% chance of a second cut by December.

The outlook could change this week given data due includes

key surveys on manufacturing on Monday, services on Wednesday

and the May payrolls report on Friday in which unemployment is

seen holding at 3.9% as 190,000 net new jobs are forecast to

have been created.

In Europe, focus was also on a downgrade to France's credit

rating by Standard & Poor's, but the country's bonds showed

little reaction.

ASIAN STRENGTH

Currency markets saw the U.S. dollar start June on a

steady footing, last flat against a basket of peers after it

posted its first monthly decline of 2024 in May.

The euro was down 0.1% against the dollar at

$1.0841.

The yen, this year's worst performing G10 currency

hurt by low Bank of Japan interest rates, gained 0.3% against

the dollar at 156.83, after hitting a four-week low of 157.715

last week.

Emerging markets were in focus following elections in

India and Mexico.

India's rupee strengthened and its stock market

rose to a record high, buoyed by expectations of

sustained economic growth as Prime Minister Narendra Modi looked

set for a third term.

The Mexican peso, however, was down 3% as markets

feared Claudia Sheinbaum's landslide victory could bring

constitutional change.

Earlier, Asian stocks rose on the

back of the strong Chinese data, along with prints from Japan

and South Korea.

Gold was up 0.1% at $2,330 an ounce, having now

rallied for four months in a row helped in part by buying from

central banks and China.

European natural gas prices rose over 8% to

their highest this year at over 37 euros/ MWh as an outage in

Norway, which overtook Russia in 2022 as Europe's biggest gas

supplier, pushed exports sharply lower on Monday.

Oil prices see-sawed after OPEC+ agreed on Sunday to extend

most of its oil output cuts into 2025, though some cuts will

start to be unwound from October 2024 onwards.

Brent was last up 0.2% at $81.24 a barrel, while

U.S. crude was up 0.1% at $77.04 per barrel.

($1 = 157.1900 yen)

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