Thursday ahead of an expected
ECB interest rate cut, and after weak U.S. 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 euro zone's borrowing costs to 2% later, investors are keen to hear what Christine Lagarde and other policymakers think might come next, given the uncertainty over a potential U.S. trade deal.
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German data already out showed industrial orders unexpectedly rose in April due to strong domestic demand. That helped lift Europe's STOXX 600 index (.STOXX), opens new tab 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 on the ECB's move. With euro zone inflation now safely in line with the central bank's 2% 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.
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The combination of trade talks with the U.S. 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 U.S. jobs and services data, putting the focus squarely on non-farm payrolls due on Friday.
The yield on the 30-year U.S. Treasury bond fell more than 7 basis points to 4.911%, while the benchmark 10-year yield dropped to 4.385%, having been at a 3-month high of 4.629% just a couple of weeks ago.
