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US stocks rebounded on Friday after the Federal Reserve’s preferred measure of inflation fell slightly more than expected, lowering the chances of another interest rate rise in September.
Wall Street’s benchmark S&P 500 added 0.6 per cent shortly after the New York open, while the tech-heavy Nasdaq Composite surged 1 per cent. Both indices had declined in the previous two sessions, with Thursday’s early rally melting away after reports that the Bank of Japan was considering relaxing its policy of capping bond yields, which were confirmed on Friday.
Friday’s moves came after the US core personal consumption expenditures index, which strips out volatile food and energy costs, rose 4.1 per cent in June, down from 4.6 per cent in May and less than the 4.2 per cent rise forecast by economists polled by Reuters.
Separate data showed US wage growth increased at a slower than expected pace in the second quarter, after figures out earlier in the week suggested gross domestic product was stronger than expected over the same period.
The flurry of data had boosted hopes that inflation will return to the Fed’s 2 per cent target “without the need for further rate hikes and a recession”, said James Knightley, chief international economist at ING. The Fed on Wednesday lifted interest rates to a 22-year high.
European stocks edged lower after data showed Germany’s economy stagnated in the second quarter, in the latest evidence of a broader slowdown across the eurozone.
The region-wide Stoxx Europe 600 lost 0.2 per cent, having hit its highest level in more than a year in the previous session. The index pared earlier losses that came after the Bank of Japan surprised investors by relaxing its grip on the country’s domestic bond market.
France’s Cac 40 fell 0.1 per cent and Germany’s Dax traded between gains and losses.
Data on Friday showed the German economy failed to grow in the three months to June, following a 0.1 per cent decline in the first quarter and a 0.4 per cent contraction in the fourth.
The reading came in below the 0.1 per cent expansion forecast of economists polled by Reuters, in a sign that high borrowing costs had weighed on the eurozone’s largest economy. Separate data showed German consumer prices rose 6.2 per cent year on year, in line with economists’ expectations.
Annual inflation in France, meanwhile, slowed to 5 per cent in July, down from 5.3 per cent in June. In Spain, the rate increased contrary to market expectations, rising to 2.1 per cent, from 1.6 per cent in the previous month. Growth slowed to 0.4 per cent over the same period, from 0.5 per cent in the previous quarter.
The European Central Bank on Thursday lifted interest rates for the ninth successive time, by 0.25 percentage points to 3.75 per cent, in an effort to tame the region’s stubborn price pressures.
While policymakers left the door open for more tightening to come, the majority of investors bet that rates would remain unchanged at the ECB’s next meeting in September, according to data compiled by Refinitiv and based on interest rate derivatives prices.
Investors were also grappling with the Bank of Japan’s tweak to its policy of capping 10-year domestic government bond yields at 0.5 per cent. The BoJ said this level was now a “reference” rather than a “rigid limit”, and that it would use bond purchases to stop yields climbing above 1 per cent.
The 10-year yield on Japan’s government debt climbed as far as 0.57 per cent, a nine-year high.
However, the BoJ opted to stick to the overnight rate of minus 0.1 per cent as it concluded its two-day policy meeting on Friday, saying that more time was needed to achieve its 2 per cent inflation target sustainably.
Japan’s yen, which had strengthened against the dollar in morning trading, briefly fell as much as 1.1 per cent, before settling at ¥140.49. The benchmark Topix stock index fell 0.2 per cent.
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