Volkswacht Bodensee - Stock markets diverge as eurozone inflation drops further

The eurozone's annual inflation rate dropped below the European Central Bank's two-percent target in September for the first time since 2021, official data showed, raising the odds of an ECB interest-rate cut this month.

Markets were up across the continent, led by Frankfurt, with Paris trailing behind because of domestic political concerns.

In New York, the Dow and the wider S&P 500, which finished at fresh record-highs Monday, slipped after opening as investors awaited fresh signs on the direction of interest rates. The tech-heavy Nasdaq was also lower.

"Investors are awaiting the release of key US employment data this week before taking on any bold positions," said Fawad Razaqzada, an analyst at City Index.

There are several US economic reports expected this week, with by far the most important for the markets being Friday's monthly jobs report.

US stocks were also held back Tuesday as dockworkers went on strike at major ports on the East and Gulf coasts, which could cost the economy billions of dollars a day and stoke inflation.

In the single-currency eurozone, year-on-year consumer price increases slowed to 1.8 percent in September, down from 2.2 percent in August, thanks to falling energy costs.

"The fall of inflation below two percent for the first time in more than three years opens room for the ECB to cut rates again on October 17," said GianLuigi Mandruzzato, an economist at EFG Asset Management.

Combined with falling oil prices, the decline "points to much lower inflation in the next few months than the ECB expected, further supporting the case for cutting rates sooner rather than later".

The ECB cut rates twice this year after having hiked them at a record pace from mid-2022 to tame surging consumer prices.

Paris lagged behind other European bourses as new French Prime Minister Michel Barnier presented the policies of his fragile minority government to parliament, including spending cuts and higher taxes.

Barnier said it would take two years longer than previously planned for France to reduce its deficit to the EU limit of three percent of national output as the country faces a massive debt pile.

In Asia, Hong Kong and mainland Chinese bourses closed for a holiday after thundering higher over the past week on China's new economic stimulus.

Tokyo closed up almost two percent, paring some of Monday's nearly five-percent drop, as the yen pulled back against the dollar, giving Japanese exporters some much needed relief.

Data showing Japanese business confidence remained positive in the third quarter also provided some support.

On currency markets, the dollar also edged higher against the euro on greater expectations of ECB interest rate cuts.

Oil prices continued their slide as expectations of increasing supply outweighed growing tensions on the Middle East.

Libya appointed a new central bank governor Monday under a UN-backed deal, a key step to resolving a dispute between the country's rival administrations and allow oil output to resume.

- Key figures around 1335 GMT -

New York - Dow: DOWN 0.6 percent at 42,093.04

New York - S&P 500: DOWN 0.5 percent at 5,731.35

New York - Nasdaq: DOWN 0.6 percent at 18,084.27

London - FTSE 100: UP 0.6 percent at 8,288.92 points

Paris - CAC 40: UP 0.2 percent at 7,652.27

Frankfurt - DAX: UP 0.6 percent at 19,432.76

Tokyo - Nikkei 225: UP 1.9 percent at 38,651.97 (close)

Hong Kong - Hang Seng Index: Closed for a holiday

Shanghai - Composite: Closed for a holiday

Euro/dollar: DOWN at $1.1078 from $1.1137 on Monday

Pound/dollar: DOWN at $1.3320 from $1.3374

Euro/pound: UP at 83.12 pence from 83.25 pence

Dollar/yen: UP at 143.91 yen from 143.63 yen

West Texas Intermediate: DOWN 1.2 percent at $67.36 per barrel

Brent North Sea Crude: DOWN 1.1 percent at $70.93 per barrel

R.Fischer--VB