European stocks rose higher and Wall Street futures fell on Friday ahead of an expected uptick in US core inflation, the Federal Reserve’s preferred measure of price growth.
The regional Stoxx Europe 600 added 0.1 percent, Germany’s Dax rose 0.2 percent and London’s FTSE 100 rose 0.2 percent. Contracts tracking Wall Street’s benchmark S&P 500 and those tracking the tech-heavy Nasdaq 100 were down 0.3 percent and 0.6 percent, respectively, before the New York open.
Figures from the US commerce department later in the day will show that the core personal consumption index, which excludes energy and food inflation, increased 0.3 percent in December after rising 0.2 percent month-on-month in November.
Core inflation fell to its lowest level since the end of 2021 in November, but Fed chairman Jay Powell insisted core inflation “often provides a more accurate indicator of the direction of overall inflation”.
US equities rallied on Thursday after gross domestic product for the fourth quarter of 2022 came in ahead of forecasts, rising at an annual rate of 2.9 percent. That was above the 2.6 percent economists had forecast, marking a milder slowdown from 3.2 percent in the previous quarter.
“With inflation above target, this justifies the continued interest rate hikes 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 by just 0.7 percent.
However, much of the increase in GDP reflected an “unintentional increase” in inventory building by mining, construction and manufacturing groups as consumer demand continued to weaken, he said.
Still, investors strongly expect the Fed to raise rates by a quarter percentage point next week, marking a slowdown from the 0.5 percentage point move it made in December. Powell’s forward guidance and the language he adopted during the press conference after the tariff decision was announced are therefore likely to be the focus of attention.
A measure of the dollar’s strength against a basket of six currencies on Friday, when Brent crude, the international oil benchmark, rose 0.7 percent to $88.06 a barrel.
In Asia, Hong Kong’s Hang Seng index rose 0.5 percent, Japan’s benchmark Nikkei 225 rose nearly 0.1 percent and South Korea’s Kospi gained 0.7 percent. Markets in China are closed for the lunar new year holiday.