LONDON - European markets made a steady start on Thursday ahead of an expected ECB interest rate cut, and after weak US economic numbers had triggered a sharp government bond rally and nudged Wall Street toward bull market territory.
With the European Central Bank expected to deliver another quarter point cut in the eurozone's borrowing costs to 2 percent later, investors are keen to hear what Christine Lagarde and other policymakers think might come next, given the uncertainty over a potential US trade deal.
German data already out showed industrial orders unexpectedly rose in April due to strong domestic demand. That helped lift Europe's STOXX 600 index for a third day running as Germany's approval of a tax relief package also lifted sentiment.
The euro and regional government bonds barely budged, however, as traders waited for the ECB's move. With eurozone inflation now safely in line with the central bank's 2 percent target, policymakers have widely telegraphed what would be their eighth cut in the current cycle later.
"A cut today is pretty much a done deal," said Oxford Economics' Oliver Rakau, who expected Lagarde to sound even more non-committal than usual in the post rate-decision press conference.
The combination of trade talks with the US and robust data coming out of Germany increased the chance that this might even be the last cut, although for now Rakau still expects two more before the end of the year.
"A sudden trade deal could shift things along a lot," he said. "They don't want to be wrongfooted and German fiscal stimulus also coming."
The currency markets were largely in a holding pattern.
The dollar had dropped in the previous session after weak US jobs and services data, putting the focus squarely on non-farm payrolls due on Friday.
The yield on the 30-year US Treasury bond fell more than 7 basis points to 4.911 percent, while the benchmark 10-year yield dropped to 4.385 percent, having been at a 3-month high of 4.629 percent just a couple of weeks ago.
Trade talks
Trump's doubling of tariffs on steel and aluminium imports had also become effective on Wednesday, hitting Canada and Mexico in particular. The same day, his administration sought "best offers" from trading partners to stop other import levies from taking effect in July.
Japan was sending key trade negotiator Ryosei Akazawa to the US on Thursday for another round of talks. Germany's chancellor, Friedrich Merz, was also in Washington to meet Trump.
MSCI's broadest index of Asia-Pacific shares outside Japan had jumped 0.7 percent overnight, with South Korea's KOSPI touching an 11-month high amid optimism around new President Lee Jae-myung and Hong Kong's Hang Seng up 1 percent.
"There is a degree of complacency in the equity markets in the sense there is an expectation now that there will continue to be resolution and deals being done," said Chris Nicol, Australia equity strategist at Morgan Stanley.
"The black and white of the policy is still to be put in stone and the growth and inflation impacts are still relatively uncertain."
The dollar index, which measures the greenback against a basket of currencies, rose 0.1 percent to 98.8, trimming its 0.5 percent slide on Wednesday.
Among the individual moves the dollar was up 0.3 percent against the yen at 143.34, 0.25 percent higher against the Swiss franc at 0.82025 francs and virtually unchanged against the euro and sterling at just over $1.14 and $1.35 respectively.
Gold pared gains from the previous day, while oil steadied after slipping on a build in US inventories and as Saudi Arabia cut to its July prices for Asian crude buyers.
Spot gold edged 0.1 percent lower to $3,374 per ounce. Brent crude ticked up 0.4 percent to just over $65 a barrel.
