Investors Grow Bolder Ahead of ECB Rate Decision

Strong cues from the United States and the prospect of a European Central Bank (ECB) rate cut led to early trading gains. The sustainability of this positive sentiment will depend on further interest rate expectations. Before the ECB’s key interest rate decision, the DAX rose by 0.6% to 18,686 points in early trading. Yesterday, the leading index closed with a gain of 0.9% at 18,575.94 points, having hit a four-week low the day before. U.S. labor market data fueled hopes for an imminent rate cut by the Federal Reserve, as fewer jobs were created in American companies in May than anticipated.

Focus on ECB Rate Decision
Today’s focus is on the ECB’s rate decision. The ECB is expected to cut rates by a quarter-point this afternoon for the first time since autumn 2019. According to Thomas Altmann of QC-Partners, a rate cut is already priced into the market. The central bank chief will have to discuss the future, and investors will scrutinize every subtle hint. Signals regarding the ECB’s future course will be of primary interest to investors. However, a series of rate cuts is not generally expected. “It could be a rate cut accompanied by rhetoric and projections aimed at tempering market expectations for further cuts anytime soon, making another cut in July unlikely,” comments Konstantin Oldenburger, a market expert at CMC Markets. Will the ECB’s decision continue to drive the market upwards? “It remains unclear whether the ECB will generate enough rate-cutting enthusiasm to strengthen the market further and possibly test its all-time high,” experts at Helaba noted in their daily commentary.

Industry Remains a Concern
Meanwhile, the German industry continues to send signals of weakness. In April, it recorded a fourth consecutive decline in orders, with new business shrinking by 0.2% compared to the previous month, according to the Federal Statistical Office. Economists surveyed by Reuters had expected a 0.5% increase. “The April figure alone is not catastrophic, as it was just a minor drop. Excluding large orders, there would have been a significant increase,” says Jens-Oliver Niklasch, an economist at LBBW. However, the figure still shows how the economy is struggling to regain momentum. “The second quarter is likely to have been weaker than the first quarter based on the data available so far,” adds Niklasch.

Rate Cut Hopes Drive Wall Street
New hopes for U.S. rate cuts and a tech stock rally following recent U.S. labor market data led to rising prices on Wall Street yesterday. The S&P 500 and the Nasdaq closed at record highs on Wednesday. Nvidia’s market value surpassed the $3 trillion mark for the first time, overtaking Apple, with only Microsoft now more valuable than the AI chip specialist.