Volkswacht Bodensee - Sticky US inflation data robs stocks of momentum

The US Federal Reserve wraps up its final policy meeting on Wednesday, and although it is expected to hold interest rates steady, investors will be hoping Fed chief Jerome Powell and updated forecasts may provide more indication whether rate cuts are on the horizon early next year.

Investors had been looking to Tuesday data for confirmation that inflation continues to fall in the United States and that the Fed could begin bringing down interest rates.

But while the data showed headline consumer price 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, it unexpectedly rose on a monthly basis by 0.1 percent.

Meanwhile core inflation, which excludes volatile food and energy prices and is closely followed by the Fed, rose by an expected 0.3 percent.

"The key takeaway from the report is the recognition that core CPI was 'sticky'," largely because of the housing component, 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 over the past several weeks.

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

On Wall Street, the Dow pushed higher after ending Monday at the highest level in two years. The tech-heavy Nasdaq and the S&P 500 were also higher in late morning trading.

"Because this report lacked an unexpected spike in inflation, investors will likely remain focused on the timing of the first rate cut vs. worries about another rate hike," said analyst Bret Kenwell at eToro.

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

The dollar was lower against its major rivals although it picked up after the US inflation data.

Oil prices tumbled more than 3 percent, with the main US crude contract, WTI, falling back below $70 per barrel.

"Crude oil prices slipped to 5-month lows in the aftermath of today’s US CPI numbers, as the US dollar rebounded off its lows of the day, and yields edged higher," said Michael Hewson at CMC Markets.

Concerns about demand given tepid global growth and ample supplies despite pledges by OPEC+ nations to further cut production have seen oil prices continue to slide lower.

- Key figures around 1630 GMT -

New York - Dow: UP 0.3 percent at 36,506.09 points

London - FTSE 100: FLAT at 7,542.77 (close)

Paris - CAC 40: DOWN 0.1 at 7,543.55 (close)

Frankfurt - DAX: FLAT at 16,791.74 (close)

EURO STOXX 50: DOWN less than 0.1 percent at 4,536.61 (close)

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 145.60 yen from 146.09 yen on Monday

Euro/dollar: UP at $1.0790 from $1.0761

Pound/dollar: DOWN at $1.2549 from $1.2562

Euro/pound: UP at 85.98 pence from 85.72 pence

West Texas Intermediate: DOWN 3.5 percent at $68.83 per barrel

Brent North Sea crude: DOWN 3.4 percent at $73.48 per barrel

burs-rl/cw

F.Fehr--VB