Markets Hold Steady as Europe Awaits ECB Rate Cut Amid Global Trade and Bond Moves

European markets opened cautiously on Thursday as investors awaited a widely anticipated interest rate cut from the European Central Bank (ECB). The expected quarter-point cut would bring euro zone borrowing costs down to 2%, the eighth such move in the current easing cycle. Sentiment was shaped by a rally in global bonds driven by weaker-than-expected U.S. economic data, which also pushed Wall Street closer to a bull market. The market is also keeping an eye on ECB President Christine Lagarde’s post-decision remarks, which could hint at the central bank’s next steps amid ongoing trade uncertainties with the U.S.

In a sign of resilience, Germany reported an unexpected rise in industrial orders for April, attributed to strong domestic demand. This, along with the country’s recent tax relief package, buoyed European equities, helping the STOXX 600 index rise for a third consecutive day. However, government bond yields and the euro remained flat as traders opted for caution ahead of the ECB announcement. Analysts, including those from Oxford Economics, suggested that while today’s rate cut is a certainty, Lagarde may refrain from offering clear guidance due to shifting economic conditions.

One major source of uncertainty is the state of global trade relations, particularly with the U.S. Former President Donald Trump’s administration recently doubled tariffs on steel and aluminum imports from Canada and Mexico, and is pressing other trade partners for concessions. This has added a layer of complexity for European policymakers, especially as Germany’s Chancellor Friedrich Merz visits Washington, and Japan dispatches a key trade envoy for further negotiations.

In global markets, the recent U.S. economic softness weighed on the dollar and drove Treasury yields down sharply. The 10-year Treasury yield fell to 4.385%, down from a recent peak of 4.629%. The dollar index inched up slightly after falling the day before, while commodity prices were mixed: gold dipped slightly and oil prices steadied following Saudi Arabia’s decision to lower crude prices for Asian buyers amid a rise in U.S. stockpiles.

Investor sentiment across Asia remained upbeat, with major stock indices in South Korea and Hong Kong hitting new highs. Analysts, however, warned of growing complacency in equity markets, suggesting that optimism around trade deals and policy clarity may be premature. With key U.S. employment data due on Friday and lingering inflation concerns, the global economic outlook remains fluid despite today’s expected ECB rate cut.

Source: Reuters