The global bond market lost steam after notching its longest winning run in 2024 as the European Central Bank raised its inflation forecasts after delivering a widely expected rate cut.

In a historic move that saw the ECB slashing borrowing costs ahead of the U.S. Federal Reserve, officials led by President Christine Lagarde said that while the inflation outlook has improved “markedly,” they’ll “keep policy rates sufficiently restrictive for as long as necessary.” The remarks were enough to lift bond yields across the board, with Treasuries also joining the move as traders positioned for Friday’s U.S. payrolls data.

“The ECB eased, but in order to get the votes, they had to agree to an increase in inflation expectations,” said Andrew Brenner at NatAlliance Securities. “So we are calling it a hawkish ease. And U.S. Treasuries are back in the red. It does not change our view to take profits before the employment number tomorrow.”

U.S. 10-year yields rose two basis points to 4.30 per cent. The S&P 500 fluctuated. European shares held near a record high. The euro rose 0.1 per cent and the yield on 10-year German bonds climbed four basis points to 2.55 per cent.

To Mark Wall at Deutsche Bank AG, the immediate tone of the ECB decision was that of a “hawkish cut”.

“This is not a central bank in a rush to ease policy,” he noted.

Traders have escalated rate-cut bets in the past week, emboldened by a slew of softer-than-forecast U.S. economic data, the Bank of Canada’s decision to ease monetary policy, and expectations that the ECB would be next to cut.

The enthusiasm for bonds will once again be tested as U.S. non-farm payrolls data on Friday provide fresh clues on whether growth is cooling sufficiently in the world’s largest economy.

A survey conducted by 22V Research shows there’s no consensus over the market reaction to employment data — with 36 per cent of the investors polled betting on a “risk-off” reaction, 33 per cent saying “risk-on”, and 31 per cent “negligible/mixed.”

The tally also highlighted the fact that investors are paying the most attention to Payrolls — not average hourly earnings, which is a reversal from recent surveys.

On the eve of the U.S. payrolls report, Wall Street also waded through a slew of data. Jobless claims topped estimates, U.S. labour costs increased by less than previously reported and the trade deficit widened.

Corporate highlights:

• The two U.S. antitrust agencies have agreed to divide responsibility over the artificial intelligence industry, giving the U.S. Federal Trade Commission the go-ahead to open a probe into Microsoft Corp.’s relationship with OpenAI, according to people familiar with the matter.
• Lyft Inc. is expecting gross bookings to grow about 15 per cent at a compound annual rate in the next three years, the company said Thursday ahead of its first investor day.
• Instacart announced a new US$500 million share repurchase program, the third round of buybacks the grocery delivery company has authorized since September as it seeks to boost confidence in its growth potential.
• Newmont Corp., the world’s biggest gold miner, said its plan to raise $2 billion is on track as its asset sales attract bidders.
• Lululemon Athletica Inc.’s international sales growth and new women’s merchandise helped propel a higher full-year profit outlook.
• Trafigura Group posted its smallest first-half profit since 2020 — down 73 per cent from a year earlier — as the commodity giant adjusts to calmer conditions across its key energy and metals markets.
• SpaceX’s massive Starship rocket blasted off to space and mostly survived a plunge through Earth’s atmosphere, notching new milestones on Elon Musk’s path to bringing it into regular commercial operation.

Key events this week:

• China trade, forex reserves, Friday
• Eurozone GDP, Friday
• U.S. unemployment rate, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 Index gained 0.1% to 5,358.06 as of 11 a.m. New York time
• The Dow Jones Industrial Average climbed 0.1% to 38,856.36
• The Nasdaq Composite Index rose 0.1% to 17,202.59
• The Stoxx Europe 600 Index jumped 0.7% to 524.64
• The MSCI All-Country World Index increased 0.3% to 797.04

Currencies

• The Bloomberg Dollar Spot Index was little changed at 1,251.99
• The euro rose 0.1% to $1.0877
• The British pound dipped 0.1% to $1.2776
• The Japanese yen weakened 0.1% to 156.23 per dollar

Bonds

• The yield on 10-year Treasuries rose two basis points to 4.30%
• Germany’s 10-year yield gained four basis points to 2.55%
• Britain’s 10-year yield declined one basis point to 4.177%

Commodities

• The Bloomberg Commodity Index climbed 1% to 102.90
• West Texas Intermediate crude rose 0.7% to $74.56 a barrel
• Gold strengthened 0.4% to $2,363.92 an ounce