European stocks soared to new heights on Thursday following the European Central Bank’s decision to cut interest rates for the first time since 2019, causing more investor optimism. The pan-European Stoxx 600 index rose 0.7%, lifted by robust performances across major bourses and sectors, particularly in technology and healthcare. Meanwhile, in the US, markets showed a more passive response, with the S&P 500 and Nasdaq Composite retreating slightly from their record levels as traders braced for the pivotal May nonfarm payrolls report. The ECB’s rate cut, alongside softer US labour market data, has intensified speculation about potential Federal Reserve rate cuts, setting the stage for significant market movements in the coming days.

Key Takeaways:

  • European Stocks Reach Record Highs Post-ECB Rate Cut: The pan-European Stoxx 600 index closed at a record 524.75 points, surpassing the previous high set on May 15. The FTSE 100 Index rose by 0.47%, gaining 38.39 points to close at 8285.34. Tech stocks led the gains with a 1.17% increase, while utilities fell 0.9%.
  • S&P 500 Slips Slightly: The S&P 500 closed flat, dipping 0.02% to 5,352.96 after hitting an intraday record high. Despite two sets of softer US labour market data boosting hopes for Federal Reserve rate cuts, the index saw restrained movement as investors awaited the May nonfarm payrolls report.
  • Nasdaq Composite Edges Lower: The Nasdaq Composite inched down 0.09% to 17,173.12, reflecting a slight pullback from its recent record highs. The index was weighed down by a 1.1% decline in Nvidia, which cooled from its record valuation earlier in the week.
  • Dow Jones Posts Modest Gains: The Dow Jones Industrial Average rose by 0.20%, or 78.84 points, to 38,886.17. This gain highlights a relatively steady performance amid broader market uncertainties.
  • Asian Markets Respond Positively: Japan’s Nikkei 225 climbed 0.55% to close at 38,703.51, and the Topix rose 0.33% to end at 2,757.23. Australia’s S&P/ASX 200 increased by 0.68% to 7,821.8 despite a 2.5% year-on-year drop in exports. Hong Kong’s Hang Seng index rose 0.23%, while China’s CSI 300 closed slightly lower at 3,592.25.
  • Treasury Yields Flat Amid Economic Data and Rate Outlook: US Treasury yields were little changed on Thursday as investors weighed the latest economic data and the outlook for interest rate cuts. The yield on the 10-year Treasury was down by less than 1 basis point at 4.285%, while the 2-year Treasury yield decreased by less than 1 basis point to 4.728%.
  • ECB Reduces Interest Rates: The European Central Bank cut its key rate to 3.75%, down from 4%, marking the first reduction since September 2019. The move comes amid updated inflation projections, with the 2024 forecast raised to 2.5% from 2.3% and the 2025 outlook increased to 2.2% from 2%.
  • Oil Prices Climb Amid Rate Cut Speculations: West Texas Intermediate crude futures rose 2% to $75.55 a barrel, while Brent crude increased 1.86% to $79.87 a barrel. The rise follows the ECB’s rate cut and expectations of potential rate reductions by the Federal Reserve.

FX Today:

  • Gold Prices Hit Two-Week High on Weaker US Jobs Data: Gold extended its rally, trading within the $2,320 to $2,360 range. The Relative Strength Index (RSI) remains bullish, suggesting further gains. The next resistance level for XAU/USD is $2,400, followed by the year-to-date high of $2,450. If prices slip below $2,350, support is expected at the 50-day Simple Moving Average (SMA) of $2,337, with further support at $2,303 and $2,277.
  • GBP/USD Consolidates Below Resistance: GBP/USD remained firm during Thursday’s session, below the strong resistance level of 1.2800 after hitting a daily high of 1.2809 and a low of 1.7625. The pair’s key support levels are at 1.2755 and 1.2694 , while resistance is seen at 1.2800, 1.2817 and the year-to-date high of 1.2893.
  • USD/CAD Holds Steady as Markets Await US NFP: USD/CAD tested the 1.3700 handle in Thursday’s session, holding within a demand zone between 1.3630 and 1.3590. The pair struggled to gain topside momentum, staying below the 1.3700 level. The 50-day Exponential Moving Average (EMA) at 1.3650 provided support, with the 200-day EMA at 1.3560 offering a long-term price floor.
  • GBP/JPY Stabilises Above 199.00: GBP/JPY hovered just above 199.00 in quiet trading on Thursday, stabilising after recent volatility. The pair traded near the 200-hour Exponential Moving Average (EMA) at 199.33, with a recent high of 200.75 from late May and a low near 197.00, indicating a consolidation phase after hitting a 34-year high.

Market Movers:

  • Lululemon Surges on Strong Earnings: Lululemon shares jumped 4.8% after the athletic apparel retailer reported Q1 earnings that exceeded expectations. The company posted a profit per share of $2.54, beating the $2.38 expected by analysts, with revenue reaching $2.21 billion, above the consensus estimate of $2.19 billion.
  • GameStop Shares Surge: GameStop shares soared over 47% to close at $46.55 after “Roaring Kitty” announced a YouTube livestream. The stock hit a high of $47.50 during the session, reflecting heightened investor interest.
  • Five Below Plummets on Weak Guidance: Shares of Five Below sank 10.6% following lacklustre first-quarter revenue results and disappointing guidance. The discount retailer projected revenue between $830 million and $850 million for the current quarter, falling short of the $883 million expected by analysts.
  • Nvidia Edges Lower After Record Highs: Nvidia shares slipped 1.1%, cooling off from record highs seen earlier in the week. The chipmaker recently announced its next generation of artificial intelligence chips, propelling the stock to surpass a $3 trillion market valuation.
  • Salesforce Gains on Stake Increase: Salesforce stock rose 2.6% after board member and co-CEO of ValueAct, Mason Morfit, increased his stake in the software company to just under $1 billion. The move follows Salesforce’s first revenue miss since 2006 earlier this week.
  • Sprinklr Tumbles on Reduced Forecast: Sprinklr shares fell more than 15% after the business technology company cut its full-year revenue guidance to between $779 million and $781 million, below the $805.4 million consensus forecast. The company’s prior guidance range was $804.5 million to $805.5 million.
  • Old Dominion Freight Line Declines on Slowing Growth: Old Dominion Freight Line shares dropped 3.3% as the freight company reported a cooling in tonnage growth. The company recorded a 1.5% increase in May, down from a 2.3% rise in April.
  • Smartsheet Soars on Earnings Beat: Smartsheet stock surged over 17% following first-quarter results that topped Wall Street expectations. The company reported adjusted earnings of 32 cents per share, surpassing the 27 cents expected by analysts, with revenue of $263 million, beating the anticipated $258 million.
  • Instacart Jumps on Share Repurchase Announcement: Instacart shares rose more than 9% after the company announced a $500 million share repurchase program. The grocery delivery service’s stock has seen a significant boost from this strategic move.
  • J.M. Smucker Gains on Strong Earnings: J.M. Smucker shares climbed about 4.6% following a better-than-expected fourth-quarter earnings report. The food and beverage manufacturer posted earnings of $2.66 per share, surpassing the $2.33 expected by analysts.
  • Fluence Energy Drops on Downgrade: Fluence Energy shares fell 7.6% after Guggenheim downgraded the stock from buy to neutral, citing that the shares are “fairly valued” following a recent rally.
  • Ultragenyx Pharmaceutical Rises on Upgrade: Ultragenyx Pharmaceutical shares increased nearly 1% after Goldman Sachs upgraded the stock to buy from neutral. The bank highlighted the company’s diverse rare disease pipeline and increased conviction in its monoclonal antibody treatment for brittle bone disease.
  • StoneCo Upgraded by JPMorgan: StoneCo shares rose 2.3% after JPMorgan upgraded the stock from neutral to overweight. The bank cited the company’s earnings per share potential and discounted valuation as key reasons for the upgrade.

As the markets react to the European Central Bank’s interest rate cut, European stocks have reached record highs, while US equities remain mixed with investors keenly awaiting the May nonfarm payrolls report for further economic insights. The ECB’s decision to reduce rates for the first time in five years has fuelled optimism across sectors, particularly in technology and healthcare, and sparked gains in crude oil and gold prices. Despite the mixed performance in the US markets, significant movements in individual stocks, such as Lululemon’s surge and Five Below’s decline, underscore the varied investor sentiment. Looking ahead, the relationship between global central bank policies and economic indicators will continue to shape market dynamics, with the Federal Reserve’s potential rate adjustments being a critical point for traders.