Stocks rise on more positive inflation data
Stock markets were mostly higher on Thursday after new U.S. data suggested that inflation could indeed be slowing in the world's biggest economy, raising hopes of less aggressive Federal Reserve monetary policy.
The U.S. producer price index (PPI) rose by 9.8 percent year-on-year in July, the Labor Department calculated, down from 11.3 percent in June. And on a monthly basis, the index actually fell for the first time in over a year.
Coming after better-than-expected consumer price data the day before, the PPI numbers cheered investors as they suggested that the Fed could begin taking its foot off the pedal somewhat when it comes to raising interest rates to dampen inflation, traders said.
Wall Street was higher on the news, while European markets, which had been in the red earlier in the session, were mostly able to end the day in positive territory.
"The key takeaway from the report is the moderation seen in the year-over-year inflation readings. That follows on the heels of the pleasing CPI data and it fits neatly within the supportive peak inflation narrative that has been a boon for investor sentiment," said Patrick O'Hare, analyst at Briefing.com.
Nevertheless, leading Fed officials have already sought to temper expectations that the monetary policy tightening cycle could be coming to a complete halt.
The head of the Minneapolis Federal Reserve Bank, Neel Kashkari, warned: "We are a long way away from saying that we're anywhere close to declaring victory."
The chief of the Chicago Federal Reserve Bank, Charles Evans, said rates will continue to rise for "the rest of this year and into next year."
"Investors are certainly in a more upbeat mood as the relief from the U.S. inflation data ripples through the markets," said OANDA analyst Craig Erlam.
However, "Fed policymakers remain keen to stress that the tightening cycle is far from done and a policy U-turn early next year is highly unlikely," Erlam said.
- Half-point rise?-
After the Fed already raised interest rates by three-quarters of a percentage point twice this year, the financial markets fear that a further hike of the same magnitude could choke off economic recovery.
"Though the probability of another 75-basis-point hike in September has fallen sharply, the debate about a hike of 50 or 75 basis points will continue, and the Fed will be keen to keep that debate going, until we get the next consumer price inflation and employment reports," said Forex.com analyst Fawad Razaqzada.
Investors will therefore be listening out for further comments from policymakers over the next weeks to better gauge the likely pace of further rate hikes, traders said.
On the oil market, crude prices climbed as U.S. recession fears eased -- but remained around six-month lows and below the levels seen before the Ukraine war.
- Key figures at around 1535 GMT -
New York - Dow: UP 0.5 percent at 33,460.13 points
London - FTSE 100: DOWN 0.5 percent at 7,465.91 (close)
Frankfurt - DAX: DOWN 0.1 percent at 13,694.51 (close)
Paris - CAC 40: UP 0.3 percent at 6,544.67 (close)
EURO STOXX 50: UP 0.2 percent at 3,757.05
Hong Kong - Hang Seng Index: UP 2.4 percent at 20,082.43 (close)
Shanghai - Composite: UP 1.6 percent at 3,281.67 (close)
Tokyo - Nikkei 225: Closed for a holiday
Euro/dollar: UP at $1.0335 from $1.0299 Wednesday
Pound/dollar: DOWN at $1.2214 from $1.2213
Euro/pound: UP at 84.59 pence from 84.29 pence
Dollar/yen: DOWN at 132.67 yen from 132.89 yen
Brent North Sea crude: UP 1.3 percent at $98.64 per barrel
West Texas Intermediate: UP 1.4 percent at $93.17 per barrel