Early trading in European stock indexes saw a decline on Friday as investors reacted to data indicating moderate increases in US consumer prices in July. The consumer price index grew by 0.2 percent last month, the same rate as June, leading some to view it as lessening the likelihood of another Federal Reserve rate hike next month.
However, investor optimism was tempered by remarks from San Francisco Federal Reserve Bank President Mary Daly, who expressed the need for more progress in addressing inflation. This cautious sentiment influenced Asian and European markets, with the STOXX 600 index falling by 0.7 percent at 12:24 p.m. Saudi time.
The MSCI World Equity index also experienced a 0.3 percent drop for the day, potentially marking a small weekly decline overall. Market participants were awaiting the release of US producer price and consumer sentiment data later in the session.
Ben Laidler, global markets strategist at eToro, observed that the inflation numbers were sending mixed signals. He expressed hope that the day’s data would confirm the relief from yesterday’s data, indicating that inflation isn’t accelerating significantly and the underlying trend is one of easing inflation.
In Australia, the central bank’s head noted that policy was in the “calibration stage,” suggesting that the worst was behind in terms of inflation. However, depending on forthcoming data and evolving risks, further policy tightening might be necessary.
Concerns were also raised by weak data from China, contributing to negative sentiment. Recent data suggested deflation in China, sparking fears of a prolonged period of slower economic growth similar to Japan’s “lost decades.”
The US dollar remained relatively stable, with the index at 102.58, potentially marking its fourth consecutive weekly gain. The dollar’s strength led the yen to touch a six-week low of 144.89 per dollar in early trade.
Eurozone bond yields increased, with Germany’s benchmark 10-year yield rising approximately five basis points to 2.574 percent. The euro held steady at $1.0981.
The pound increased by 0.2 percent after UK gross domestic product data indicated unexpected growth in the second quarter, driven by a strong performance in June. However, the UK remains the only major advanced economy yet to regain its pre-COVID late-2019 level, as shown by data released on Friday.
Investors will be monitoring UK inflation data set to be released next Wednesday.
Oil prices remained near recent highs, with Brent crude declining by 0.4 percent to $86.07 and West Texas Intermediate crude futures down 0.4 percent to $82.48. The International Energy Agency forecasted slower oil demand growth next year due to lacklustre macroeconomic conditions, a tapering post-pandemic recovery, and the increasing use of electric vehicles.
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