US and European stock markets wobbled on Friday as investors digested inflation figures that raised the prospect of interest rate cuts in the two major economies next month.
Paris closed 0.1 percent lower while Frankfurt and London were marginally in the red after the indexes were in the green for most of the day.
In New York, the Dow opened higher but was down 0.1 percent around midday, a day after closing at a record high following the release of data showing the US economy performed better than thought in the second quarter.
The broad-based S&P 500 index and the tech-heavy Nasdaq rose.
Official data on Friday showed the US Federal Reserve’s favoured measure of inflation — the personal consumption expenditures (PCE) price index — held steady on an annual basis in July at 2.5 percent.
It edged up on a monthly basis from 0.1 percent in June to 0.2 percent in July.
The figures were in line with market forecasts, raising expectations that the Federal Reserve will cut rates when it meets on September 17-18.
“It’s another reassuring inflation report for a Fed that’s looking to lower interest rates at its mid-September meeting,” said Bret Kenwell, US investment analyst at eToro trading platform.
“It would have taken a scorching hot inflation report for the Fed to reverse course on a rate cut now,” Kenwell said.
The only doubt now is the size of the Fed cut.
Analysts expect a reduction of 0.25 percentage points, but some say it could be bigger if jobs data next week shows weakness in the labour market.
“There are still concerns about the jobs market. Another big miss could increase speculation of a 50 basis point cut,” Kenwell said.
– ECB: one or two cuts? –
In Europe, official figures showed that inflation slowed to 2.2 percent in August in the 20 countries that share the euro.
The figures raised hopes that the European Central Bank, which cut rates already once in June but paused in July, will lower borrowing costs again in September.
French central bank governor Francois Villeroy de Galhau said in an interview with the magazine Le Point published Friday that it would be “fair and wise” for the ECB to cut rates at its September 12 meeting.
“If we waited until we were actually at two percent to lower rates, we would be acting too late,” said Villeroy de Galhau, a member of the ECB governing council that decides on rates.
GianLuigi Mandruzzato, senior economist at EFG Asset Management, said that while a rate cut is expected next month, an increase in services prices raised the likehood that the ECB will not reduce them again before December.
ECB board member Isabel Schnabel cautioned on Friday that the Frankfurt-based institution should “proceed gradually and cautiously” on rates.
Speaking before the eurozone inflation figures were released, she pointed in particular to “persistent price pressures in the services sector”.
But other analysts said the ECB will likely move on rates again later this year.
“Services inflation might not be quite as bad as it first appears,” said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, noting that the increase might be linked to the Paris Olympics.
“If services inflation declines over the rest of the year as we expect, the ECB is likely to continue gradually reducing interest rates with another 25bp (basis point) cut in December,” he said in a note.
Oil prices, meanwhile, fell after Reuters reported that OPEC is set to proceed with a planned oil output increase from October. The report comes amid concerns about Libyan supply disruptions.
– Key figures around 1610 GMT –
New York – Dow: DOWN 0.1 percent at 41,283.97 points
New York – S&P 500: UP 0.2 at 5,603.49
New York – Nasdaq Composite: UP 0.3 percent at 17,576.50
London – FTSE 100: FLAT at 8,376.63
Paris – CAC 40: DOWN 0.1 percent at 7,630.95
Frankfurt – DAX: FLAT at 18,906.92
Tokyo – Nikkei 225: UP 0.7 percent at 38,647.75 (close)
Hong Kong – Hang Seng Index: UP 1.1 percent at 17,989.07 (close)
Shanghai – Composite: UP 0.7 percent at 2,842.21 (close)
Dollar/yen: UP at 145.96 yen from 144.93 yen on Thursday
Euro/dollar: DOWN at $1.1058 from $1.1077
Pound/dollar: DOWN at $1.3127 from $1.3170
Euro/pound: UP at 84.23 pence from 84.11 pence
West Texas Intermediate: DOWN 2.6 percent at $73.96 per barrel
Brent North Sea Crude: DOWN 1.4 percent at $78.80 per barrel
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