European stocks edged higher and Wall Street futures slipped on Friday ahead of an expected uptick in core US inflation, the Federal Reserve’s preferred measure of price growth.
The regional Stoxx Europe 600 added 0.1 per cent, Germany’s Dax rose 0.2 per cent and London’s FTSE 100 jumped 0.2 per cent. Contracts tracking Wall Street’s benchmark S&P 500 and those tracking the tech-heavy Nasdaq 100 declined 0.3 per cent and 0.6 per cent, respectively, ahead of the New York open.
Figures from the US commerce department later in the day are forecast to show that the core personal consumption index, which omits energy and food inflation, increased by 0.3 per cent in December after rising 0.2 per cent month on month in November.
Headline inflation fell to its lowest level since late 2021 in November, but Fed chair Jay Powell has insisted core inflation “often gives a more accurate indicator of where overall inflation is headed”.
US equities rallied on Thursday after gross domestic product for the fourth quarter of 2022 came in ahead of projections, rising at an annualised pace of 2.9 per cent. That was above the 2.6 per cent economists had forecast, marking a milder slowdown from 3.2 per cent in the previous quarter.
“With inflation well above target, this fully justifies ongoing interest rate increases from the Federal Reserve,” said James Knightley, chief international economist at ING.
“Dig a little deeper,” however, and it seems “we have good growth but not for great reasons”, Knightley added. Consumer spending rose less than expected, residential investment fell sharply and non-residential fixed investment, “basically business capex,” grew just 0.7 per cent.
Instead, much of the rise in GDP reflected “increasingly involuntary” inventory building by mining, construction and manufacturing groups as consumer demand continues to soften, he said.
Still, investors firmly expect the Fed to raise rates by a quarter percentage point next week, marking a slowdown from the 0.5 percentage point move implemented in December. Powell’s forward guidance and the language he adopts during a press conference after the rate decision is announced are therefore likely to be the focus of attention.
A measure of the dollar’s strength against a basket of six currencies was flat on Friday, while prices for Brent crude, the international oil benchmark, rose 0.7 per cent to $88.06 a barrel.
In Asia, Hong Kong’s Hang Seng index rose 0.5 per cent, Japan’s benchmark Nikkei 225 increased almost 0.1 per cent and South Korea’s Kospi gained 0.7 per cent. Markets in China are closed for the lunar new year holiday.
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