NEW YORK: Wall Street rebounded Friday (Jul 28) and eurozone stocks edged higher on data showing easing inflation, while the yen yo-yoed after Japan’s central bank tweaked its ultra-loose monetary policy.
The Dow added 0.5 per cent, while the broader S&P 500 climbed 1.0 per cent and the tech-heavy Nasdaq Composite Index jumped 1.9 per cent.
This came after data showed that the Federal Reserve’s preferred gauge of inflation, the personal consumption expenditures price index, rose 3.0 per cent last month from June 2022.
The figure was down from a 3.8 per cent rise in May, extending a downward trend.
The indicator is still above the central bank’s 2 per cent target over the longer run, “yet the Fed is bound to take some solace from the recognition that it continues to move in the right direction”, said Briefing.com analyst Patrick O’Hare.
Stock markets have enjoyed a broadly positive week on hopes the US Fed and other central banks were at or close to the end of more than a year of monetary tightening as inflation comes down.
The Fed on Wednesday said that future rate decisions would be determined by data, which was welcomed by investors who saw recent indicators – pointing to an easing of price pressure and softening of the labor market – as giving it room to hold off more increases.
And on Thursday, European Central Bank boss Christine Lagarde left open the possibility of a pause in rate hikes.
Paris stocks edged 0.2 per cent higher on Friday after data showed the French economy grew a forecast-busting 0.5 per cent in the second quarter, while inflation eased in July.
Frankfurt added 0.4 per cent, setting another record close, on slowing inflation despite data showing the German economy stagnated in the second quarter.
“With price pressures in Germany also slowing more than expected in July there is a sense that this week’s rate hike by the ECB may well have been its last, with a number of ECB policymakers expressing increasing caution over the growth outlook,” said analyst Michael Hewson at CMC Markets.
After a closely-watched meeting, the Bank of Japan (BoJ) said it would allow “greater flexibility” in government bond markets, having allowed them to move in a tight band in a process known as yields curve control.
But on Friday it said that while it would maintain that range, its upper and lower limits would be used as references, rather than being rigid.
The move means rates in Japan would be allowed to rise more than previously. The yen swung around after the announcement, but was lower against both the dollar and the euro near 2100 GMT.
The currency has been hammered for more than a year as the BoJ refused to shift from its loose policy, even as central banks around the world pushed up interest rates to fight surging inflation.
However, with prices picking up at home and the yen struggling, pressure has been growing on the bank to change tack.
The Nikkei 225 index sank more than two percent on the prospect of higher borrowing costs before paring the losses by the close.
“Market reaction has been very choppy as it is not a straightforward decision to digest,” said Khoon Goh, of Australia and New Zealand Banking Group.
Asian markets closed out the week mixed. Hong Kong and Shanghai were boosted by hopes for further measures by Beijing to boost the struggling Chinese economy.
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