The ECB has started a cycle of rate cuts. Today, investors are focused on the Nonfarm Payrolls report

Today, the US will release labor market data for May. Friday’s Nonfarm payrolls report is expected to show that the US labor market remained strong again in May. Economists expect the country to add 185,000 jobs in May, up slightly from 175,000 in April. The unemployment rate will remain at 3.9%, and the year-over-year wage rate will remain at 3.9%. Given the recent strong GDP data, if it matches forecasts, it will increase the likelihood that the US Fed will keep rates on hold longer, possibly until the end of the year. This situation would be positive for the US dollar and negative for risk assets (euro, pound, indices).

As expected, the ECB cut the main refinancing rate by 25 bps to 4.25% and said the governing council will continue to take a data-dependent and meeting-by-meeting approach to determine the appropriate level and duration of the cap. The ECB also raised its 2024 euro area GDP forecast to 0.9% from 0.6% and raised its 2024 EU inflation forecast excluding food and energy to 2.8% from 2.6%. ECB President Lagarde said the ECB will keep rates fairly tight for as long as necessary and makes no prior commitment to a specific rate path.

WTI crude oil prices rose by 2% to $75.5 a barrel, extending their upward trend for a second straight day after hitting a four-month low of $73 on Tuesday. The rise was fueled by the European Central Bank’s first interest rate cut in five years and market speculation that the Federal Reserve will follow suit in September. In addition, soft US jobs data on Wednesday boosted hopes that the Federal Reserve may cut interest rates twice this year. There is a 69% probability that the Fed will lower borrowing costs in September, which could stimulate economic activity and boost oil demand.

The US natural gas (XNG) prices fell to $2.8/MMBtu after the EIA reported a larger-than-expected increase in storage inventories. The US utilities added 98 billion cubic feet of gas to storage last week, exceeding market expectations for an increase of 89 Bcf. In addition, the report showed that US natural gas inventories are 25.1% above the 5-year average. However, natural gas prices rose more than 7% this week due to recent production cuts and forecasts of hotter-than-normal weather in late June.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) gained 0.55%, China’s FTSE China A50 (CHA50) was up 0.17%, Hong Kong’s Hang Seng (HK50) added 0.28% and Australia’s ASX 200 (AU200) was positive 0.68%.

The Reserve Bank of India (RBI) kept the benchmark repo rate at 6.5% for the eighth consecutive meeting, as expected, amid continued price pressures and the economy’s resilience. The latest move came after annual inflation in April 2024 stood at 4.85%, almost unchanged from March, remaining within the RBI’s target range of 2-6% in the medium term.

Japan’s reserve assets fell significantly to $1.232 trillion in May 2024 from $1.279 trillion, the lowest since February last year, as the government intervened in foreign exchange to defend the yen.

The offshore yuan rose to 7.25 per dollar as investors reacted positively to the latest economic data from China. The latest data showed strong growth in Chinese exports for the second month in May, indicating robust global demand for Chinese goods. It also provided a glimmer of hope for the Chinese economy, which has been struggling with a prolonged slump in the real estate sector while seeking a long-term recovery.