Markets Show Mixed Performance Ahead of ECB Rate Decision Amid Inflation Cooling

Investors are closely watching the European Central Bank’s (ECB) monetary policy meeting scheduled for later today, widely anticipating a further interest rate cut. Following the ECB’s 25 basis points reduction in April, which brought the deposit facility rate down to 2.25%, markets are pricing in another cut in June. However, expectations of additional easing beyond this remain uncertain, with a potential pause in July gaining traction as the ECB assesses fresh economic data and inflation trends, according to analysts at Capital.com.

Highlights:

• ECB cut key rates by 25 bps in April; another cut expected in June.

• Potential July pause under discussion based on data evaluation.

• Market focus on ECB’s forward guidance amid economic uncertainties.

Eurozone Inflation Eases Faster Than Expected, Supporting Rate Cut Bets

The case for ECB easing has strengthened as euro area inflation cooled more than anticipated in May. Eurostat’s flash estimate revealed annual consumer price growth at 1.9%, down from 2.2% in April, marking the first time inflation has fallen below the ECB’s 2% target since September 2024. This deceleration reflects subdued pricing power driven by renewed global trade tensions and weak consumer demand.

Core inflation, which excludes volatile food and energy prices, also eased to 2.4% in May from 2.7% in April, undershooting forecasts of 2.5%. On a monthly basis, core prices showed minimal increase of 0.1%, further highlighting softening underlying inflation pressures.

Highlights:

• Euro area inflation drops to 1.9% in May, below ECB’s 2% target.

• Core inflation slows to 2.4%, below expectations.

• Inflation softness attributed to trade tensions and weak demand.

Asian Shares Mixed as US Economic Reports Temper Wall Street Rally

Asian equity markets displayed mixed performance Thursday, mirroring cautious sentiment after recent strong gains on Wall Street weakened following less optimistic US economic data. The Nikkei 225 declined 0.2% to 37,658.46, and Australia’s S&P/ASX 200 slipped nearly 0.1% to 8,535.10. In contrast, South Korea’s Kospi surged 2.1% to 2,829.48 amid political optimism linked to new President Lee Jae-myung’s administration, signaling potential renewed North Korea talks and strengthened trilateral ties with the US and Japan. Hong Kong’s Hang Seng added 0.9%, while the Shanghai Composite remained virtually flat.

US futures edged lower, and oil prices retreated modestly, reflecting broader caution.

Highlights:

• Nikkei down 0.2%; ASX 200 falls 0.1%.

• Kospi jumps 2.1% on political optimism.

• Hang Seng gains 0.9%; Shanghai Composite stable.

• US futures lower; oil prices slip.

US Markets and Bond Yields Show Divergent Moves After Mixed Economic Data

On Wednesday, the US stock market showed limited movement, with the S&P 500 essentially flat at 5,970.81, still 2.8% below its record high. The Dow Jones Industrial Average declined 0.2% to 42,427.74, while the Nasdaq Composite gained 0.3% to 19,460.49. Treasury yields fell sharply in response to weaker-than-expected economic reports, signaling increased demand for safer assets amid economic growth concerns.

Highlights:

• S&P 500 flat; Dow down 0.2%; Nasdaq up 0.3%.

• Treasury yields decline on soft economic data.

• Markets remain cautious on growth prospects.

Commodities and Currency Movements Reflect Market Caution

In early Thursday trading, US crude oil prices dipped slightly by 8 cents to $62.77 per barrel, while Brent crude edged up by 1 cent to $64.87. The US dollar strengthened marginally against the Japanese yen to 142.87 from 142.78, and the euro remained largely steady near $1.1413, showing limited reaction ahead of the ECB announcement.

Highlights:

• US crude down slightly; Brent crude steady.

• Dollar gains modestly against yen.

• Euro stable ahead of ECB policy update.