European stocks dip as high inflation concerns linger

European stock markets eased on Thursday 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.

– Key figures at around 1100 GMT –

London – FTSE 100: DOWN 0.4 percent at 7,479.08 points

Frankfurt – DAX: DOWN 0.1 percent at 13,686.67

Paris – CAC 40: DOWN 0.3 percent at 6,503.48

EURO STOXX 50: DOWN 0.2 percent at 3,742.36

Hong Kong – Hang Seng Index: UP 2.4 percent at 20,082.43 (close)

Shanghai – Composite: UP 1.6 percent at 3,281.67 (close)

Tokyo – Nikkei 225: Closed for a holiday

New York – Dow: UP 1.5 percent at 33,309.51 (close)

Euro/dollar: UP at $1.0336 from $1.0299 Wednesday

Pound/dollar: DOWN at $1.2206 from $1.2213

Euro/pound: UP at 84.69 pence from 84.29 pence

Dollar/yen: DOWN at 132.59 yen from 132.89 yen 

Brent North Sea crude: UP 0.8 percent at $98.16 per barrel

West Texas Intermediate: UP 0.8 percent at $92.67 per barrel