NEW YORK, United States — European stock markets rose Thursday as the European Central Bank cut interest rates for the first time since 2019 — but gains were muted as sticky inflation blurs the outlook for more reductions.
Wall Street stocks meanwhile were little changed, after hitting fresh records a day prior as leading chip-maker Nvidia’s market capitalization topped $3 trillion.
Paris, Frankfurt, and London all closed in the green after the ECB lowered its key deposit rate by a quarter point to 3.75 percent, though eurozone markets dialed back earlier gains as the bank warned the outlook for rate cuts was uncertain.
The euro firmed against the dollar.
READ: Europe Central Bank jumps ahead of the Fed in lowering rates
Kathleen Brooks, research director at trading platform XTB, said the markets had previously forecast three cuts for the rest of this year but now expect fewer.
“This meeting was not unexpected, but it has moved the dial for eurozone interest rate expectations,” she said in a note.
“It also highlights how this next phase of monetary policy will not necessarily be a cutting cycle like we have seen in past history. There is unlikely to be a successive set of cuts,” Brooks added.
ECB inflation forecasts
The ECB hiked its inflation forecasts for this year and next. It no longer expects inflation to hit its two-percent target in 2025, but rather to come in at 2.2 percent.
READ: Eurozone inflation dips but stubborn core prices may worry ECB
ECB President Christine Lagarde then warned at a press conference that the path of future rate cuts was uncertain and that there would be “bumps on the road.”
The ECB’s accompanying statement “arguably gave less guidance than might have been expected on what comes next,” said Deutsche Bank economist Mark Wall.
“In that sense, the immediate tone is a ‘hawkish cut.’ This is not a central bank in a rush to ease policy,” he added.
The ECB began to hike rates to combat inflation in mid-2022, after the US Federal Reserve and the Bank of England, but it did not wait for its American and British peers to begin cutting them.
READ: Canada central bank cuts key lending rate, signals more ahead
“The ECB has stolen a march on the Bank of England and Federal Reserve — who are both potentially still a few months away from cutting — and will breathe life into an economy that desperately needs some form of stimulus,” said Lindsay James, investment strategist at Quilter Investors.
The Fed holds its next policy meeting on Tuesday and Wednesday.
Soft labor data has fanned hopes that the Fed can start to cut US interest rates from their two-decade highs in September.
Investors are now set up for the latest non-farm payrolls report due Friday which should provide a clearer snapshot of the labor market and the world’s biggest economy.