Major stock markets pushed higher Friday as traders welcomed data showing a moderation in US inflation, firming expectations the Federal Reserve will start cutting interest rates in September.
Wall Street’s three main indices rose solidly at the end of a volatile week during which tech stocks and other sectors were rocked by disappointing earnings.
The Fed’s preferred measure of US inflation — the personal consumption expenditures (PCE) price index — fell to 2.5 percent on an annual basis in June, from 2.6 percent in May.
“This provides clear support for the Fed to start cutting interest rates in September,” said Kathy Bostjancic, chief economist for Nationwide, adding that the move could lead to “a desired soft-landing for the economy, though risks of a harder landing remain.”
The core PCE price index that excludes volatile food and energy prices held steady at 2.6 percent.
The Fed has signaled that it wants to see inflation trending lower to its 2.0 percent target before cutting interest rates.
“To get a rate cut, investors and the Fed only needed to avoid a disastrously high PCE result today,” said Bret Kenwell, US investment analyst at eToro online brokerage.
Attention will shift to Fed Chair Jerome Powell’s comments after the central bank’s meeting next week, “with the hope and expectation that he will set the stage for a rate cut in September,” he added.
Briefing.com analyst Patrick O’Hare noted the market was now fully pricing in a 0.25-percentage-point cut in the Fed’s policy rate.
The inflation data followed figures Thursday that showed the US economy expanded far more than expected in the second quarter, providing a much-needed boost to sentiment and easing concerns that it was slowing a little too much for comfort.
The improvement was largely consumer-led, even while US interest rates remain at two-decade highs and inflation is elevated.
European indices closed higher, while most leading Asian indices registered gains.
The Taipei stock market plunged more than three percent as traders returned from their imposed typhoon break, with chipmakers leading the losses.
Market titan TSMC dove more than five percent, while ASE Technology plunged almost 10 percent.
On the US exchanges, 3M shot up 23 percent after reporting better-than-expected earnings and lifting its full-year profit forecast. Analysts see the industrial heavyweight as well positioned following progress on major litigation issues that have dogged the company.
But Biogen dove 7.2 percent after announcing European officials gave a negative reading on a new Alzheimer’s disease treatment. Biogen and partner Eisai said they would seek a reexamination of the decision.
– Key figures around 2030 GMT –
New York – Dow: UP 1.6 percent at 40,589.34 (close)
New York – S&P 500: UP 1.1 percent at 5,459.10 (close)
New York – Nasdaq Composite: UP 1.0 percent at 17,357.88 (close)
London – FTSE 100: UP 1.2 percent at 8,285.71 (close)
Paris – CAC 40: UP 1.2 percent at 7,517.68 (close)
Frankfurt – DAX: UP 0.7 percent at 18,417.55 (close)
EURO STOXX 50: UP 1.1 percent at 4,862.50 (close)
Tokyo – Nikkei 225: DOWN 0.5 percent at 37,667.41 (close)
Hong Kong – Hang Seng Index: UP 0.1 percent at 17,021.31 (close)
Shanghai – Composite: UP 0.1 percent at 2,890.90 (close)
Euro/dollar: UP at $1.0859 from $1.0848 on Thursday
Pound/dollar: UP at $1.2875 from $1.2851
Dollar/yen: DOWN at 153.75 yen from 153.94 yen
Euro/pound: DOWN at 84.32 pence at 84.39 pence
West Texas Intermediate: DOWN 1.4 percent at $76.16 per barrel
Brent North Sea Crude: DOWN 1.5 percent at $81.13 per barrel
burs-jmb/aha