US stocks diverged on Wednesday as consumer inflation fell more than expected, fuelling a debate about the size of an expected Federal Reserve interest-rate cut next week.
In Europe, London’s share-price gains were capped in midday deals by official data showing Britain’s economy stalled in July.
Paris and Frankfurt grew by bigger amounts as investors in the eurozone geared up for an expected rate cut by the European Central Bank on Thursday.
Asia’s main equity indices closed lower with a strong yen weighing on Tokyo’s market, while Chinese stocks were knocked by concerns over China’s struggling economy, analysts said.
Investors were also digesting the US presidential debate between Vice President Kamala Harris and former president Donald Trump.
Eagerly awaited data out Wednesday showed the US consumer price index (CPI) slowed more-than-expected to 2.5 percent in August from a year ago, down from 2.9 percent in July and the lowest annual figure since February 2021.
Mahmoud Alkudsi, senior market analyst at brokerage ADSS, said recent inflation data has come in lower-than-expected, and has been accompanied by weak jobs market data for the past two months.
“These developments may give the data-driven Federal Reserve greater confidence to accelerate its pace of interest rate cuts, potentially to the tune of 50 basis points at its next meeting,” he said.
Fed officials have signalled they are ready to begin cutting interest rates at their meeting next week for the first time since inflation rocketed and then fell in the wake of Russia’s invasion of Ukraine.
Whether they will start with 25 or 50 basis points cut has been the subject of intense debate among traders.
Briefing.com analyst Patrick O’Hare said the main takeaway from Wednesday’s report is that “core” inflation with volatile food and energy prices stripped out remains stubbornly above the Fed’s two percent target.
“The elevated core reading on a monthly and annual basis will be a focal point for the Fed and a likely reason to keep a September rate cut capped at 25 basis points,” he said.
As the data deteriorates debate has also raged whether the Fed has waited too long to begin cutting rates and the US economy may be heading into recession. Stocks and oil prices have seen sharp falls in the past couple weeks as the growth outlook worsens.
Oil prices recovered in part after a hammering Tuesday, when Brent North Sea crude slid below $70 per barrel for the first time since December 2021 on concerns about the global outlook.
Elsewhere Wednesday, the yen hit a nine-month high after a Bank of Japan official hinted at more monetary tightening.
The Japanese unit was boosted also by bets on a Harris presidency after she was considered to have come out on top in her debate with Trump and following her endorsement by superstar Taylor Swift.
The chances of Trump losing weighed on bitcoin after he had previously vowed to be a “pro-bitcoin president” if elected in November.
– Key figures around 1330 GMT –
New York – Dow: DOWN 0.5 percent at 40,538.79 points
New York – S&P 500: DOWN less than 0.1 percent at 5,490.76
New York – Nasdaq Composite: UP 0.2 percent at 17,061.72
London – FTSE 100: UP 0.8 percent at 8,231.46
Paris – CAC 40: UP 0.4 percent at 7,437.36
Frankfurt – DAX: UP 0.7 percent at 18,393.78
Tokyo – Nikkei 225: DOWN 1.5 percent at 35,619.77 (close)
Hong Kong – Hang Seng Index: DOWN 0.7 percent at 17,108.71 (close)
Shanghai – Composite: DOWN 0.8 percent at 2,721.80 (close)
Dollar/yen: DOWN at 142.31 yen from 142.44 yen on Tuesday
Euro/dollar: DOWN at $1.1017 from $1.1023
Pound/dollar: DOWN at $1.3057 from $1.3083
Euro/pound: UP at 84.38 pence from 84.25 pence
Brent North Sea Crude: UP 1.8 percent at $70.43 per barrel
West Texas Intermediate: UP 2.2 percent at $67.13 per barrel
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