LONDON: Europe and US stock markets rose Thursday as investors digested data showing a softening of US consumer inflation, potentially giving the Federal Reserve room to slow its interest rate hikes.
Equities also found support on growing optimism over China’s economic reopening.
Europe’s main bourses surpassed levels not seen in months.
Paris closed 0.7 percent higher after briefly rising past the 7,000-point mark for the first time since February last year, while Frankfurt closed above 15,000 points for the first time since the same month.
Shares in London were 0.9 percent higher. On Wall Street, the Dow Jones Industrial Average reversed earlier losses to push higher in mid-morning trades.
After inflation soared to decades-high levels in the last year, investors had been keenly awaiting the latest US consumer price index (CPI) reading for indications about the Fed’s next move.
It showed consumer inflation in the United States slipped in December to the lowest level in over a year — rising 6.5 percent from a year ago, the smallest increase since October 2021, the Labor Department said.
The annual figure was also down from November’s 7.1-percent spike.
Between November and December, CPI dipped 0.1 percent, the first time in around two years it logged a month-on-month contraction.
“While the job picture remains strong, the Fed will be pleased to see that the inflation outlook is getting better too,” Chris Beauchamp, chief market analyst at online trading platform IG, said.
“Steady declines in the rate of price increases might not be too much comfort for consumers, but they are music to the ears of stock investors.”
Although generally positive, the US data showed services inflation remained above the Fed’s target rate.
“We’re clearly moving in the right direction,” President Joe Biden told reporters.
The Fed has raised interest rates seven times in the past year to try to cool demand and rein in surging prices.
– Fed pivot coming? –
Stock market gains were also helped by comments from Fed official Susan Collins backing a quarter-point US rate hike at the bank’s next policy decision on February 1.
Collins, who is head of the Boston Fed, told The New York Times that slowing the pace of increases would give policymakers a chance to see how their efforts to rein in inflation were working.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said Fed officials still faced “a super-tricky balancing act”.
“Expectations remain that the Fed will opt for a 0.25-percent hike at the next meeting, but a steeper 0.5-percent jump still can’t be ruled out as core inflation which strips out volatile energy and food prices is still proving a much tougher nut to crack,” she said.
Investors are also keeping tabs on developments in China as it emerges from years of strict zero-Covid containment measures.
While the long-term outlook remains positive, soaring infections across the country are leading to worries about the effect on economic activity.
World oil prices also jumped on expectations of rebounding Chinese energy demand.
“Energy traders should get used to seeing oil prices head higher,” said Oanda analyst Edward Moya. “Oil demand is coming back and expectations are high that China’s demand is about to skyrocket.”
Several oil experts have tipped prices to hit $100 a barrel this year, with top hedge fund manager Pierre Andurand predicting last week that it could pass $140.
– Key figures around 1645 GMT –
London – FTSE 100: UP 0.9 percent at 7,794.04 points (close)
Frankfurt – DAX: UP 0.7 percent at 15,058.30 (close)
Paris – CAC 40: UP 0.7 percent at 6,975.68 (close)
EURO STOXX 50: UP 0.7 percent at 4,126.68
New York – Dow: UP 0.4 percent at 34,114.02
Tokyo – Nikkei 225: FLAT at 26,449.82 (close)
Hong Kong – Hang Seng Index: UP 0.4 percent at 21,514.10 (close)
Shanghai – Composite: UP 0.1 percent at 3,163.45 (close)
Euro/dollar: UP at $1.0815 from $1.0757 on Wednesday
Dollar/yen: DOWN at 129.86 yen from 132.45 yen
Pound/dollar: UP at $1.2173 from $1.2146
Euro/pound: UP at 88.86 pence from 88.56 pence
Brent North Sea crude: UP 1.8 percent at $84.13 a barrel
West Texas Intermediate: UP 1.7 percent at $78.70 a barrel
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