As widely expected, the European Central Bank (ECB) cut interest rates by 25 basis points (bps) last week, the first such move since the Bank started rapidly tightening policy in mid-2022[1]. That was despite the Bank lifting its inflation outlook for both this year and next year, underlying the stickiness of pricing pressures still in the system. That could indicate a slower path of interest rate cuts from here although ECB President Christine Lagarde did not provide any additional guidance in her post meeting press conference. It was the first time that the ECB has cut interest rates ahead of the Federal Reserve (Fed) with the move following its Swiss, Swedish, and Canadian central counterparts, all of which have eased policy over the past few months. Attention this week turns to the Fed although it is unlikely to implement its first rate cut in this cycle until later in the year. 

With the ECB move long signalled, the response by equity markets was largely muted although European indices did advance with the MSCI Europe ex UK index concluding the week +1.6% higher in local currency terms. US gains were predominantly seen in growth centric sectors with both the S&P 500 (+1.3%) and NASDAQ (+2.4%) reaching record intraday highs during the week. Back in Europe, UK markets went into reverse with the FTSE 100 and FTSE 250 declining by -0.4% and -0.8% respectively. Mixed returns were seen in Asia, the Shanghai Composite shedding -1.2% despite several strong economic data releases whilst the Nikkei 225 rose by +0.5% on solid services sector figures.

In the commodity markets, oil prices retreated on future demand concerns despite the previous announcement of further OPEC+ production cuts; Brent Crude declined by -2.6% to $79.68 a barrel. Copper drifted lower for a third consecutive week (-2.8% to $9,638 a tonne) with sentiment possibly weakened by mixed trade data in China. As for gold, the precious metal declined by -0.7% to $2,315 an ounce amid ongoing uncertainty around when the Federal Reserve could start lowering borrowing costs.

Week Ahead

Source: Refinitiv Workspace, 10/06/24

[1] European Central Bank – Combined Monetary Policy Decisions & Statement 06/06/24

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