LONDON (AFP): Stock markets rose on Thursday as highly anticipated data showed that US consumer inflation inched up last month but held at a moderate level. The new figures come against a backdrop of renewed concerns that the Federal Reserve could announce another interest-rate hike before the end of the year.
Oil prices dipped on profit-taking, a day after reaching multi-month highs on worries about Russian supplies following a Ukrainian attack on one of the country’s tankers.
Output cuts by Moscow and OPEC giant Saudi Arabia were also providing strong support to the market, analysts said. The feel-good factor that characterised much of July has given way to uncertainty about the US central bank’s plans amid warnings from policymakers that more is needed to finally get prices under control. Ongoing weakness in China’s economy — and lack of concrete action by authorities to address it — are also taking a toll on investor sentiment, helping to drive a retreat in global markets in recent weeks.
Traders were keenly awaiting Thursday’s government data, which showed the consumer price index (CPI) — a key inflation gauge — increased 3.2 percent from a year ago last month, rising from June’s 3.0 percent pace and breaking a streak of cooling figures. The closely watched gauge of inflation plays a key role in the Fed’s decision-making on monetary policy. Interest-rate hikes have dampened steep American price rises from a four-decade high of 9.1 percent in June last year.
However, their longer-term target is for inflation of two percent. The US central bank hiked rates in July but indicated that could be the last such move, after more than a year of tightening. Richard Flax, chief investment officer at digital wealth manager Moneyfarm, said the latest US inflation reading was “slightly better than expected”.
“While previous drivers in inflation (in 2022) were due to supply chain bottlenecks amidst a strong consumer demand and the war in Ukraine, the current drivers appear temporary,” he said. “After today’s data, the probability of a Fed rate rise has decreased,” he added. All three main indices on Wall Street ended in the red Wednesday, dragged down by tech firms, and Asia largely followed suit Thursday.
But US stocks rose in early trading Thursday, while Europe’s main markets mostly made solid gains. Luxury and travel firms boosted Eurozone markets after China lifted a Covid-era ban on outbound group tours to dozens of countries, which could see crowds of Chinese tourists return to destinations around the world. Investors were keeping tabs on China, hoping for measures to support the ailing economy, after news that the country had slipped into deflation for the first time in more than two years and exports plunged at their fastest pace since the early days of the Covid pandemic.
With China being a key driver of global growth, the long-running slowdown is fuelling concerns about possible spillover effects. There was also a little nervousness after President Joe Biden signed an executive order directing the Treasury to restrict certain US investments in China in sensitive high-tech sectors, including semiconductors, quantum computing and artificial intelligence. Beijing hit out at the move, saying it “severely disrupts the security of global industrial and supply chains”.