European Shares Surge Amid Hopes for US Rate Cuts and UK Election Buzz | Daily Market Analysis

Key events:

• USA - Average Hourly Earnings (MoM) (Jun)
• USA - Nonfarm Payrolls (Jun)
• USA - Unemployment Rate (Jun)
• USA - Fed Monetary Policy Report

European shares rose on Thursday, driven by hopes for potential US interest rate cuts following weak economic data. Simultaneously, London's markets surged as voting commenced in the UK general election, with polls indicating a historic Labour Party victory.

The pan-European STOXX 600 index climbed by 0.6%, reaching its highest level in over a week. Britain's FTSE 100 increased by 0.8%, as investors speculated on the possible size of the Labour Party's majority.

French stocks advanced for the second consecutive day, rising 0.8%, amid intensified efforts to prevent the far-right National Rally (RN) from gaining power. A Thursday opinion poll suggested that RN is likely to fall short of an absolute majority in the second round of the parliamentary election on Sunday.

The Australian Dollar appreciated for the fourth consecutive day on Friday. This rise is attributed to persistently high inflation, prompting the Reserve Bank of Australia to delay potential rate cuts. Minutes from the RBA’s June meeting revealed that the "board judged the case for holding rates steady stronger than hiking." The board emphasized the need to remain vigilant regarding upside risks to inflation, noting data suggested an upside risk for May's CPI.

Gold prices continue their consolidative movement during the Asian session on Friday, remaining close to the highest level since June 21 reached earlier this week. From a technical perspective, Wednesday's sustained breakout above the 50-day Simple Moving Average was a fresh trigger for bullish traders. Additionally, oscillators on the daily chart have started gaining positive momentum, suggesting the path of least resistance for gold prices is upward. Further buying beyond the $2,365 area will reinforce the constructive outlook and could push XAU/USD towards the $2,400 mark. The momentum may extend further towards challenging the all-time peak around the $2,450 zone touched in May.

The USD/CAD pair is experiencing negative trading around 1.3605 in the early Asian session on Friday, driven by a generally weaker US Dollar (USD). Key events for the day include the release of employment reports from both the US and Canada. Market predictions suggest that US employment growth slowed in June, with nonfarm payrolls increasing by 190,000. The Unemployment Rate is anticipated to remain steady at 4.0%, partly due to a projected decline in last month's participation rate. Recent softer US PCE inflation data and weaker Services PMI have heightened the probability of a Federal Reserve rate cut in September, with markets currently pricing in a 70% chance ahead of the NFP release. Additionally, there is an 80% likelihood of a second rate cut in December, adding selling pressure on the US Dollar.

In Canada, the Net Change in Employment is expected to drop to 22.5K from the previous 26.7K. The Canadian Unemployment Rate is anticipated to rise slightly to 6.3% from 6.2%. Meanwhile, a modest decline in crude oil prices might negatively impact the Canadian Dollar, as Canada is a significant crude oil exporter to the United States.

On Thursday, the Japanese Yen strengthened to around 161.00 against the US Dollar, with US markets closed for a public holiday. This increase followed a successful auction of a 30-year Japanese government bond, easing concerns about the government's bond distribution and the possibility of the Bank of Japan ending its bond-buying program. This positive news has led to the Japanese Yen trading higher against the US Dollar.

GBP/USD traded within a narrow range on Thursday as traders awaited the final results of the UK’s Parliamentary Election and prepared for the US nonfarm payrolls report on Friday. With US markets closed on Thursday, market activity was reduced during the American trading window, but they are set to reopen on Friday. The UK’s Parliamentary Election is concluding, with early results indicating that the Labour Party's Keir Starmer is likely to become the first non-Conservative UK Prime Minister in 14 years.

Market forecasts continue to suggest a softening in US data. Investors, hopeful for rate cuts from the Federal Reserve, are looking for a slight economic slowdown in the US to prompt rate adjustments from the central bank. US NFP figures are expected to decrease to 190K in June, down from 272K the previous month. Markets will also be watching for significant revisions to previous data, while the US Unemployment Rate for June is expected to remain stable at 4.0%.