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Stock markets gain on rate cut hopes


Investors are now set up for the release of the key non-farm payrolls report, which is due Friday

Stocks extended a surge on Wall Street Thursday as another round of soft US jobs data raised bets on the Fed reducing interest rates this year.

Concerns about the country’s economic health sparked by a below-par factory gauge earlier this week seem to have been superseded by renewed hopes that an extended period of higher borrowing costs is finally kicking in.

Figures from payroll firm ADP on Wednesday showed private-sector hiring slowed far more than estimated in May.

That came a day after news that job openings had dropped more than expected and pointed to a softening labour market, a key goal of Fed officials along with declining inflation.

The data raised hopes that the Federal Reserve can start to cut interest rates from their two-decade highs, and traders have priced in around two before the end of this year, with some pencilling in September for the first.

Momentum continues as US data starts to weaken, possibly supporting earlier rate cuts from the Federal Reserve this year, said Charu Chanana at Saxo.

Investors are now set up for the release of the key non-farm payrolls report, which is due Friday and should provide a clearer view of the labour market and the US economy.

That comes ahead of next week’s Fed policy meeting, where it will also unveil its latest “dot plot” of rate expectations.

Its previous guidance – in March – was for three cuts but many are preparing for that to be cut back in light of recent data showing inflation remains sticky and decision-makers’ reluctance to move too early.

The ‘dots’ are likely to cluster around one or two interest rate cuts this year, according to Capital Economics’ Stephen Brown.

However, as inflation drops a bit faster than officials expect and GDP growth disappoints, our base case remains that the Fed will cut in September, he added.

Optimism over a rate cut has been boosted by news that Canada’s central bank had done so on Wednesday, while the ECB is expected to later on Thursday.

All three main indexes on Wall Street gained, with the S&P 500 and Nasdaq hitting new records.

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