*
ECB seen easing on Thursday, Canada may cut on Wednesday
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US ISM surveys, May payrolls reports awaited
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Focus on India, Mexico elections
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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)