Disinflation lifts European stocks to new high

Friday morning sees European stocks at record highs on signs of cooling inflation

European stocks hit record highs on Friday morning on signs of cooling inflation and further distance from the early August scare. Germany’s DAX index yesterday hit a record high and continued higher this morning to 18,923, whilst the FTSE 100 index rallied about a third of a percent to 8,416. The Eurostoxx 600 rose 0.2% to 525.77 to beat its May peak.

It follows a mixed session on Wall Street. The Dow rallied another 0.6% to make a fresh record just as Nvidia shares declined over 6% to drag down the broad S&P 500 to just below the plimsoll line, and the Nasdaq, which ended down a quarter of a percent.

US GDP data comes in slightly stronger than expected

US GDP data was a little stronger than expected, with Q2 growth revised up to 3%. That is not the sort of figure that deserves a 50-basis-point cut, but the Fed only has eyes for the labour market. A big US jobs report is up next Friday — today we look to the PCE inflation report, the Fed’s preferred measure.

Japanese inflation came in hotter than expected, with the Tokyo core CPI up to 2.4%. This undoubtedly will get the attention of the Bank of Japan, which may go for a hike in October.

Inflation in Germany fell to its lowest level in three years in August, pushing the euro lower as investors saw it supporting further ECB rate cuts. Germany’s inflation rate fell to 1.9% year-on-year, from 2.3% in July. This clear sign of disinflation should prompt the ECB towards cutting in September but it all depends on the flash Eurozone inflation data due this morning.

EURUSD cracked at the 1.110 support yesterday morning on the German data and is sticking below this level now.


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