LGT Navigator

ECB cuts rates, raises inflation projection

The European Central Bank (ECB) became the next of the world’s major central banks to begin lowering interest rates on Thursday but was unclear about future cuts. While European markets reacted positively, US stocks barely moved on Thursday and Asian equities were trading mixed to finish the week.

Shane Strowmatt, LGT
Temps de lecture
5 minutes
ECB tower
© Shutterstock

The ECB cut its main refinancing rate by 25 basis points to 4.25% on Thursday but maintained that it is not committing to any specific rate-cutting path. Thursday’s interest rate cut was widely expected by markets, but market participants are unsure about the pace of future decreases. Complicating measures further, the central bank raised its inflation projections for 2025 to 2.2%, up from a previous 2%, somewhat above its 2% target. The rate cut follows similar moves by the Swiss National Bank in March, Sweden’s Riksbank in May and the Bank of Canada just one day before. Markets have been eagerly awaiting interest rate cuts at the ECB and Federal Reserve (Fed) and hotter-than-expected inflation has caused traders to push back their timelines for rate cuts several times this year.

The euro strengthened versus the dollar, approaching an exchange rate of 1.09 immediately after the announcement. Yields on German government debt shot up with two-year yields trading about 4 basis points higher, above 3%. The Euro Stoxx 50 ended Thursday’s session up 0.7%.

More cracks in US labour market

The number of applications for unemployment benefits in the US increased last week by 8000 to 229,000 on a seasonally adjusted basis. Economists had expected a slightly lower number. The data follows this week’s JOLTS and ADP reports, which both signalled cooling in the US jobs market. Investors will receive a better look into the state of the US labour market on Friday when the Labor Department releases its employment report.

In New York, stock indices failed to gain traction after strong gains during the previous session. The Dow Jones Industrial gained 0.2%, while the S&P 500 and Nasdaq-100 closed essentially flat.

Japanese spending on the rise

In the Asia-Pacific region, stock markets were mixed amid mostly positive macroeconomic data. In Tokyo, the Nikkei 225 was trading 0.2% lower despite monthly household spending increasing for the first time since February 2023. Real household spending - which is relevant to the Bank of Japan’s monetary policy as rising spending its linked to rising inflation - was up 0.5% in April when compared with the same month a year earlier. Many Japanese companies start their fiscal year in April with wage increases often coming into effect that month.

Elsewhere in Asia, Chinese exports came in above expectations, increasing 7.6% in May. That follows a 1.5% rise in the previous month. Imports were much lower than expected, increasing 1.8% on the year. Hong Kong's Hang Seng Index was trading 0.8% lower, while the CSI 300 was down 1.1%. South Korea’s Kospi was up 1.1% after returning from a public holiday on Thursday. In Australia, the S&P/ASX 200 was trading 0.5% higher. India’s central bank left its key interest rate unchanged on Friday, as the world’s largest democracy waits for Prime Minister Narendra Modi to officially be named to a third term following elections at the weekend. India’s Nifty 50 was up 1.1%.

Swiss unemployment stuck at low level

The number of people registered as unemployed in Switzerland decreased by 1492 in May to 105,465. The unemployment rate remained stable at 2.3%. Inflation has remained lower in Switzerland than in neighbouring European Union countries in the post-pandemic period. Employment data out of Germany this week showed an unemployment rate of 5.9% in Europe’s largest economy. Switzerland’s SMI gained 0.8% while Germany’s DAX closed 0.4% higher on Thursday.

Corporate and macroeconomic calendars

Corporate news in focus: Annual general meetings at Alphabet, Porsche AG.

Economic data in focus: German industrial production, German trade balance, euro-area gross domestic product, Bank of Russia interest rate decision, US nonfarm payrolls, Canadian unemployment rate, European Central Bank President Christine Lagarde speaks.

LGT helps you make informed investment decisions

Global economic and market trends at a glance

You can also follow us on Facebook or LinkedIn – or visit Insights and discover interesting background articles. If you have questions, a consultant from the bank will be happy to help you.

Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

Prendre contact