European stocks waver ahead of US inflation data

European stocks zigzagged on Friday ahead of the release of fresh US inflation data, with investors hanging on every economic report for clues on whether the Federal Reserve will slow its interest rate rises.

The regional Stoxx Europe 600 added 0.3 per cent in early trading and London’s FTSE 100 rose by a similar margin. Trading volumes are expected to be thin at the height of the festive season.

Contracts tracking Wall Street’s benchmark S&P 500 and the Nasdaq 100 were flat ahead of the New York open, steadying after a sell-off in the previous session triggered by higher than expected US growth figures.

Thursday’s declines mean the S&P 500 and the Nasdaq Composite have tumbled 20 per cent and 33 per cent, respectively in 2022. The FTSE All World share index has shed about a fifth of its value this year.

“The past two weeks have been a weak gruel of fatalism mostly and halfhearted optimism,” said Mike Zigmont, head of trading and research at Harvest Volatility Management. “It’s a weird psychological condition and it strikes me that the market [and] investors need a rest.”

Investor attention will now turn to US inflation, with data out later on Friday expected to show that the core personal consumption expenditure price index — the Fed’s preferred inflation gauge — rose 0.2 per cent month on month in November.

Signs that inflation may have peaked allowed the Fed to raise borrowing costs by half a percentage point in December, ending a run of four consecutive 0.75 percentage point moves. However, the central bank signalled its intent to raise rates just above 5 per cent next year, up from the current target range of 4.25 per cent to 4.5 per cent, with no rate cuts until 2024.

The Fed’s hawkish stance was reinforced on Thursday when third-quarter gross domestic product growth was revised to a 3.2 per cent annualised rate, up from 2.9 per cent in November. Lower than expected initial jobless claims and chipmaker Micron Technology’s announcement of jobs cuts further soured investor sentiment.

Expectations of tight monetary policy next year dented prices for US government debt this year, sending yields rising. On Friday, the two-year Treasury yield rose 0.02 percentage points at 4.28 per cent and the 10-year US Treasury yield climbed 0.03 percentage points at 3.7 per cent.

A measure of the dollar’s strength against a basket of six other international currencies fell 0.1 per cent on the day, leaving it down 9 per cent this year.

Oil prices ticked higher, with Brent crude, the international benchmark, up 2.3 per cent at $82.81 a barrel.

Elsewhere in equity markets, Hong Kong’s Hang Seng index fell 0.4 per cent, China’s CSI 300 dropped 0.2 per cent, South Korea’s Kospi slid 1.8 per cent and Japan’s Topix lost 0.5 per cent.

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