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Stock markets advanced on Friday as US and eurozone inflation figures met expectations, raising hopes that interest rate cuts are coming next month in the two major economies.
Wall Street's three main indexes opened in the green after the Dow closed at a record high the previous day, following the release of data showing the US economy performed better than thought in the second quarter.
Official data on Friday showed the US Federal Reserve's favoured measure of inflation -- the personal consumption expenditures (PCE) price index -- edged up on a monthly basis from 0.1 percent in June to 0.2 percent in July. On an annual basis, it held steady at 2.5 percent.
The figures were in line with market forecasts, raising expectations that the Federal Reserve will go ahead with a rate cut when it meets on September 17-18.
"It's another reassuring inflation report for a Fed that's looking to lower interest rates at its mid-September meeting," said Bret Kenwell, US investment analyst at eToro trading platform.
"It would have taken a scorching hot inflation report for the Fed to reverse course on a rate cut now," Kenwell said.
The only doubt now is the size of the Fed cut.
Analysts expect a reduction of 0.25 percentage points, but some say it could be as much as half-a-point if jobs data next week shows weakness in the labour market.
- ECB: one or two cuts? -
European equities were up in afternoon deals, with Frankfurt building on its previous day's record, after official figures showed that eurozone inflation slowed to 2.2 percent in August.
The figures raised hopes that the European Central Bank, which cut rates already once in June but paused in July, will lower borrowing costs again in September.
The drop in inflation "supports the expectation that the ECB will cut rates by 25 basis points in September", said GianLuigi Mandruzzato, senior economist at EFG Asset Management.
Mandruzzato said, however, that an increase in services prices raises the likehood that the ECB will not reduce rates again before December.
ECB board member Isabel Schnabel cautioned on Friday that the Frankfurt-based institution should "proceed gradually and cautiously" on rates.
Speaking before the eurozone inflation figures were released, she pointed in particular to "persistent price pressures in the services sector".
But other analysts said the ECB will likely move on rates again later this year.
"Services inflation might not be quite as bad as it first appears," said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, noting that the increase might be linked to the Paris Olympics.
"If services inflation declines over the rest of the year as we expect, the ECB is likely to continue gradually reducing interest rates with another 25bp (basis point) cut in December," he said in a note.
Asia also rallied earlier following a record day on Wall Street after data on Thursday showed the US economy grew at an annual rate of 3.0 percent in the April to June period -- revised upwards from 2.8 percent.
The news indicated the US Federal Reserve was achieving its goal of guiding the economy to a soft landing after raising interest rates to a 23-year high in efforts to bring prices under control.
- Key figures around 1350 GMT -
New York - Dow: UP 0.1 percent at 41,368.62 points
New York - S&P 500: UP 0.6 at 5,623.37
New York - Nasdaq Composite: UP 0.9 percent at 17,677.32
London - FTSE 100: UP 0.1 percent at 8,391.34
Paris - CAC 40: UP 0.2 percent at 7,652.97
Frankfurt - DAX: UP 0.1 percent at 18,937.75
Tokyo - Nikkei 225: UP 0.7 percent at 38,647.75 (close)
Hong Kong - Hang Seng Index: UP 1.1 percent at 17,989.07 (close)
Shanghai - Composite: UP 0.7 percent at 2,842.21 (close)
Dollar/yen: UP at 145.67 yen from 144.93 yen on Thursday
Euro/dollar: DOWN at $1.1060 from $1.1077
Pound/dollar: DOWN at $1.3139 from $1.3170
Euro/pound: DOWN at 84.21 pence from 84.11 pence
West Texas Intermediate: DOWN 2.2 percent at $74.23 per barrel
Brent North Sea Crude: DOWN 1.2 percent at $78.95 per barrel
(T.Burkhard--BBZ)