The European Central Bank followed through with a long-expected rate cut this week, slicing 25 basis points off its deposit rate. The move brings the key rate down to 2%, hitting what the ECB considers a “neutral” level—neither tightening nor stimulating the economy. The decision comes as inflation in the eurozone cools to 1.9%, slightly below the central bank’s 2% target. Markets reacted with cautious optimism, but the bigger question now is: what’s next? ECB President Christine Lagarde signaled that future decisions will depend on incoming data, refusing to commit to more cuts. Some policymakers are pushing for a pause this summer to assess the economic impact of past cuts and ongoing trade tensions. While the rate cut helps support growth, rising public spending and possible U.S. tariffs could reignite inflation pressures.

“The ECB’s move to 2% represents what is considered neutral territory, but markets are already pricing in another cut by year-end. This disconnect between ‘neutral’ policy and market expectations reveals the underlying fragility in both European and U.S. economies. The real test isn’t this rate cut, but whether policymakers can navigate the growing policy divergence without triggering the very stagflation scenario they’re trying to avoid,” said Inki Cho, Senior Financial Markets Strategist at Exness.

Stock Markets Wobble as U.S. Data Disappoints

Stock markets in the U.S. hit a speed bump after a week of strong gains. The Dow Jones and S&P 500 futures dipped slightly, while the Nasdaq held on to small gains. Wall Street’s rally lost momentum after fresh data showed a sharp slowdown in private-sector hiring. Payrolls rose by just 37,000 in May—far below the forecast of 110,000. This raised alarms that the job market may be cracking. Worse, U.S. services sector activity also contracted, which caught many investors off guard. These numbers sparked new calls from Donald Trump for the Fed to slash rates fast. He publicly criticized Fed Chair Jerome Powell, accusing him of acting too slowly. Despite recent gains driven by tech stocks, many now worry that economic cracks are beginning to show.

Asian Markets Reflect Global Jitters

Asian markets mirrored the uncertainty in the West. Japan’s Nikkei and Australia’s ASX slipped slightly, while South Korea’s Kospi surged more than 2%, fueled by political shifts and hopes of renewed diplomacy with North Korea. Hong Kong and Shanghai were mixed, with little movement overall. Traders in Asia are closely watching U.S. economic signals and reacting to trade news just as much as their Western peers. The recent U.S. rally has sparked hope, but weak job data and tariff threats have weighed heavily on confidence. As the ECB and Fed tread carefully, Asian markets are caught in the middle of a global tug-of-war between stimulus hopes and policy uncertainty.

Stock Markets Await Clarity from Central Banks

With the ECB’s rate cut now official and the Fed under pressure, stock markets are in wait-and-see mode. Investors want clarity: will central banks ease further, or will they hold back and risk recession? In Europe, inflation may stay below target in the near term, but long-term threats like rising defense spending and trade fragmentation could push it higher. In the U.S., traders are betting the Fed will cut later this year, but the timeline is uncertain. Friday’s upcoming jobs report from the Labor Department could shift the mood again. Any sign of further job market weakness will likely boost calls for action. However, lower rates could reignite inflation—a risk both central banks are trying to avoid.

Mixed Signals Keep Stock Markets Under Pressure

Despite upbeat earnings and tech sector strength, stock markets remain under pressure from conflicting economic signals. Falling bond yields and flat oil prices hint at investor caution. Treasury yields tumbled after weak hiring and services data, reflecting expectations for a Fed pivot. Meanwhile, ECB officials are already discussing the potential need to hike again by 2026. In short, the global economic picture remains murky. While rate cuts may offer short-term relief, structural challenges—from labor shortages to geopolitical risks—continue to haunt investors. Until more clarity emerges from both sides of the Atlantic, stocks are likely to trade in choppy waters. For now, caution remains the name of the game.