European markets higher after Nvidia-led record highs in the US

• DAX leads European markets higher ahead of likely ECB easing
• Weak jobs data helps bolster hopes of a September cut
• Nvidia boom helps drive S&P 500 and Nasdaq into fresh highs

The DAX has found itself at the front of the pack once again, with the index moving within just 1% from fresh record highs. This comes despite an unexpected decline in German factory orders, marking the first consecutive declines in a year. Nonetheless, today is all about the ECB, with markets pricing in a 25-basis point rate cut to follow yesterday’s Bank of Canada move. The fact that ECB members have been telegraphing their expectations of a June rate cut over recent weeks does make today’s decision look like a done deal, with the focus likely to be geared towards the outlook for the rest of the year. The main question for markets rest around the pace of easing this year, with significant indecision over whether we see two or three rate cuts by year-end. With that in mind, markets are likely to be more sensitive to any changes in Lagarde’s tone, alongside inflation and growth forecasts. While we have grown accustomed to the data dependent approach taken by the major central banks, we will be on the lookout for whether Lagarde views this as the beginning of a wider easing phase or simply normalizing rates somewhat after a dramatic period of hikes that took rates to a record high in a bid to combat inflation.

US markets are heading higher in pre-market trade, with bulls hoping that the recent soft data emerging from the jobs market will push the Federal Reserve into a rate cut in September. Inflation has started to rear its head once again over recent months, with CPI of 3.4% still a way off the 2% target. Nonetheless, the recent crude oil weakness has helped lift hopes that we will see a relatively muted May inflation read-out, with lower energy prices helping to drive down costs for businesses and consumers alike. Today sees the latest unemployment claims metric, following on from the weak ADP (152K) and JOLTS job openings (8.059M) figures earlier in the week. Much of the strength seen for the headline payrolls figure this year has been driven by part-time roles, and thus the jitters seen across these alternate measures of employment health will put a greater focus on the finer details of Friday’s job report.

Nvidia helped power the S&P 500 into record highs yesterday, with the company topping $3 trillion valuation and overtaking Apple to clinch the second spot behind Microsoft. The role of the company as a driver of wider market gains has been evident when comparing the year-to-date returns of the Dow (3%) and S&P 500 (12%), with the absence of Nvidia representing one of the main reasons for the Dow’s underperformance. With Nvidia seeing its market cap rise by the value of Amazon over the past six-months, it comes as no surprise to consider the implications for markets when this incredible growth train starts to stutter. For now, the recent earnings outperformance from Nvidia helps feed the bullish narrative, with markets optimistic that the growth pathway will continue as big tech funnel huge amounts of capital into their burgeoning AI offerings.