Volkswacht Bodensee - Sticky US inflation data holds back stocks

Investors had been looking to the data for confirmation that inflation continues to fall in the United States and that the Federal Reserve could begin cutting rates early next year.

The data showed headline annual consumer inflation in the United States edged down for a second straight month in November, to 3.1 percent in November from 3.2 percent in October.

But on a monthly basis, prices rose by 0.1 percent although analysts had expected them to remain flat.

Core inflation which excludes volatile food and energy prices rose by an expected 0.3 percent.

"The key takeaway from the report is the recognition that core CPI was 'sticky', largely because the shelter index" which was up 0.4 percent, said Briefing.com analyst Patrick O'Hare.

"That should continue to give the Fed some pause about cutting rates anytime soon; and it may very well keep the Fed vocalising the idea that it could possibly raise rates again if progress in fighting inflation stalls," he added.

A string of data pointing to a slowdown in US inflation and a softening of the labour market -- but at a pace suggesting the economy will not tip into recession -- has seen a surge in bets on the Fed cutting borrowing costs as many as four times in 2024.

That has propelled US and European equity markets higher.

Paris and Frankfurt both set record highs before the US inflation data was released, then pared gains.

On Wall Street, the Dow index ended at the highest level in two years on Monday, and rose 0.1 percent as trading got underway.

The tech-heavy Nasdaq was flat and the S&P 500 dipped 0.1 percent.

Investors will now be looking to the US Federal Reserve's final policy meeting of the year, in particular comments by Fed officials including chief Jerome Powell, as well as updated Fed forecasts, for indications about when they may begin cutting rates.

Analyst Bret Kenwell said that while the overall data shows inflation continues to moderate, it also shows there are hurdles to overcome to get down to the Fed's target of two percent.

"Because this report lacked an unexpected spike in inflation, investors will likely remain focused on the timing of the first rate cut vs. worried about another rate hike," he said.

"A lower-than-expected inflation result would have likely increased odds that we get a rate cut in March — odds of which currently sit just above 40 percent. Lacking that outcome this morning, perhaps this acts as an excuse for the market to pull back a bit, or at the very least, consolidate," he added.

The European Central Bank and Bank of England give their latest interest-rate decisions on Thursday.

The dollar traded mixed after the US jobs report.

Oil prices tumbled more than 2.5 percent amid concerns about demand given tepid global growth and ample supplies despite pledges by OPEC+ nations to further cut production.

- Key figures around 1430 GMT -

New York - Dow: UP 0.1 percent at 36,448.44 points

London - FTSE 100: UP 0.2 percent at 7,560.29

Paris - CAC 40: FLAT at 7,552.21

Frankfurt - DAX: DOWN less than 0.1 percent at 16,779.69

EURO STOXX 50: FLAT at 4,538.64

Tokyo - Nikkei 225: UP 0.2 percent at 32,843.70 (close)

Hong Kong - Hang Seng Index: UP 1.1 percent at 16,374.50 (close)

Shanghai - Composite: UP 0.4 percent at 3,003.44 (close)

Dollar/yen: DOWN at 145.63 yen from 146.09 yen on Monday

Euro/dollar: UP at $1.0784 from $1.0761

Pound/dollar: DOWN at $1.2547 from $1.2562

Euro/pound: UP at 85.96 pence from 85.72 pence

West Texas Intermediate: DOWN 2.6 percent at $69.44 per barrel

Brent North Sea crude: DOWN 2.6 percent at $74.09 per barrel

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