LONDON – European stock markets eased today as investors took profit from the gains notched up the previous day on better-than-expected inflation data in the US.
But while overall sentiment was positive, investors remain on edge as officials at the US Federal Reserve seek to temper expectations of a possible end to the monetary policy tightening cycle, traders said.
The head of the Minneapolis Federal Reserve Bank, Neel Kashkari, warned: “We are a long way away from saying that we’re anywhere close to declaring victory”.
And according to the chief of the Chicago Federal Reserve Bank, Charles Evans, rates will continue to rise for “the rest of this year and into next year”.
“Investors are certainly in a more upbeat mood as the relief from the US inflation data ripples through the markets,” said OANDA analyst, Craig Erlam.
However, “Fed policymakers remain keen to stress that the tightening cycle is far from done and a policy U-turn early next year is highly unlikely,” Erlam said.
Investors will therefore be watching out for further comments from policymakers over the next weeks to better gauge the likely pace of further rate hikes, as strong jobs growth shows how resilient the economy remains in face of higher borrowing costs and inflation.
“Inflation has been expected to peak over the summer for some time, so it was reassuring for markets that there are clear signs that this looks to be happening,” said Oliver Blackbourn, of Janus Henderson Investors.
“However, the Fed will doubtless be focused on the signs about underlying inflation, particularly against a very tight-looking labour market.”
On the oil market, crude prices climbed as US recession fears eased – but remained around six-month lows and below the levels seen before the Ukraine war. – The Vibes, August 11, 2022
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