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World Stocks Rise After Cautious ECB Rate Cut

On Thursday, world stocks saw an uptick and the euro strengthened following the European Central Bank’s decision to cut interest rates for the first time in nearly five years, while signaling a cautious approach towards further rate adjustments.


ECB policymakers implemented the widely anticipated quarter-point rate cut, bringing rates to 3.75%. Although the move was expected, the euro and German government bond yields experienced a rise as investors digested the central bank’s stance, which refrained from guaranteeing additional rate cuts in the future.


The euro edged up to nearly $1.0890 against the dollar, while government bond yields also saw an increase.


The pan-European STOXX 600 index surged by 0.7%, while MSCI’s 47-country main world index climbed as much as 0.3%, nearing a record-high achieved on May 20.

However, Wall Street’s response was more subdued, with the S&P 500 index remaining unchanged after reaching an all-time high earlier in the day. The Dow Jones Industrial Average rose by 0.2%, while the Nasdaq Composite Index remained flat, retracing from its earlier record high.

Chip maker Nvidia (NASDAQ
) experienced a 1.1% decline after hitting a record high, a day after surpassing $3 trillion in market valuation.

Market focus now shifts towards the possibility of rate cuts by the U.S. Federal Reserve in September, according to Marchel Alexandrovich, a partner at Saltmarsh Economics.

The euro’s modest gain, following a 2% increase over the past month, pushed it to $1.0887. ECB President Christine Lagarde emphasized during her post-meeting press conference that the bank is not committing to a specific rate path.

Stronger-than-expected data in recent weeks, along with Thursday’s upward revision in the ECB’s inflation forecasts, have raised doubts about the necessity of further rate cuts this year.

This was a cautious cut,” noted Samuel Zief, head of global FX strategy at J.P. Morgan Private Bank. “We currently think that September could be next. But (there is) no reason to expect significant reductions any time soon with growth actually picking up steam of late.”

The Bank of Canada became the first G7 country to cut rates in this cycle on Wednesday, preceding the ECB. The U.S. Federal Reserve’s meeting next week is not expected to result in any immediate changes, with expectations leaning towards a possible adjustment in September.

In the bond markets, Germany’s two-year government bond yield, sensitive to policy rate expectations, rose, while benchmark 10-year U.S. Treasury yields remained flat, hovering near their lowest level in two months, reflecting recent data suggesting a potential cooling of the U.S. labor market.

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