European Markets Rally on US Labor Data Easing

European shares surged on Wednesday following data indicating a softer U.S. labor market. This boosted investor confidence for a rate cut by the Federal Reserve. The STOXX 600, Spain's IBEX, and key retailers like Inditex and WH Smith posted gains. Attention now turns to the European Central Bank's rate decision.

Reuters | Updated: 05-06-2024 14:46 IST | Created: 05-06-2024 14:46 IST
European Markets Rally on US Labor Data Easing
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European shares gained on Wednesday, mirroring global sentiment as a soft U.S. labour market data firmed bets of a rate cut from the Federal Reserve, ahead of the European Central Bank's key rate verdict later this week.

The pan-European STOXX 600 was up 0.5% as of 0840 GMT, rebounding from the previous session's losses. Wall Street ended higher on Tuesday and Asian equities broadly rose on Wednesday after data showed U.S. job openings fell in April, signalling an easing labour market and firming bets of a Fed rate cut in September.

"If you're kind of sanguine about the labour market and you see that earnings revisions are broadly positive in the U.S., that gives you a positive backdrop for equities," said Richard Flax, chief investment officer at Moneyfarm. Most sectoral indexes traded higher, with retail advancing 1.4% to hit an over two-year high as Zara-owner Inditex jumped 4.7% on better-than-expected current trading numbers in its first-quarter results.

Spain's benchmark IBEX index was up 0.6%. Adding to the sector's gains, WH Smith advanced 3.7% after the British retailer said it was well positioned for the peak summer, betting on strong travel demand.

Investors are now focused on the ECB's key interest rate decision on Thursday, where it is expected to ease borrowing costs by 25 basis points from the present record levels of 4%. "Even if the ECB does cut rates tomorrow, one of the questions that will come up, particularly given the recent inflation data is to what extent the ECB can cut further from here and on what time frame," Moneyfarm's Flax added.

In the foreword to the Slovak central bank's financial stability report published on Wednesday, policymaker Peter Kazimir said the ECB is nearing its first interest rate cut with inflation on a good path. Meanwhile, a survey showed euro zone business activity expanded at its quickest rate in a year in May, as growth in the bloc's dominant services industry outpaced contraction in manufacturing.

Among other stocks, ASML rose 3.3% after Jefferies said the Dutch semiconductor equipment maker's CFO provided positive feedback on talks with TSMC during a small group call. The technology sector climbed 1.6%, while European lenders were market laggards, down 0.2%.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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