US and European shares nudged higher Monday as momentum from last week was restrained by weaker eurozone economic data.
Stock markets rallied after the US Federal Reserve on Wednesday announced a bumper interest rate cut, its first since 2020, as inflation continued to cool toward its long-term target of two percent.
On Wall Street, the Dow and the broad-based S&P 500 hit fresh records, extending a positive stretch in anticipation of further central bank easing in the months ahead.
Easing monetary policy is “supportive for equities,” said LBBW’s Karl Haeling, who expects US officials could accelerate rate cuts if the labor market weakens.
London and Paris closed slightly higher Monday, while Frankfurt gained a healthier 0.7 percent.
Awaiting US inflation data
Friday’s upcoming release of the personal consumption expenditures index — the Fed’s preferred inflation metric — could shed light on the bank’s next rate move, as could several planned speeches this week by senior Fed officials.
Speaking on Monday, Atlanta Fed president Raphael Bostic said the US central bank’s rate decision last week left it in a strong position, whichever way the economic winds blow in the coming months.
“In my view, the 50-basis-point adjustment at the meeting last week positions us well should the risks to our mandates turn out to be less balanced than I am thinking,” said Bostic, one of 12 voting members on the Fed’s rate-setting committee this year.
“If my optimism about inflation is unsatisfied, then the Committee can slow or even halt the pace of further reductions,” he said.
On the other hand, if the labor markets turn out to be less healthy than they appear at this moment, “the half percentage-point reduction puts us in a better position to adjust than a more modest cut would have,” Bostic added.
Eurozone business activity falls
Traders in Europe juggled reports showing that eurozone business activity declined for the first time in seven months in September with expectations that the weak data raises the chance the European Central Bank could speed up its own rate cuts.
“PMI data for France and Germany was weak across the board,” said Kathleen Brooks, research director at XTB.
S&P Global’s purchasing managers’ index (PMI) — a key gauge of the overall health of the economy — dropped to 48.9 in September, down from 51 in August. Any reading below 50 indicated contraction.
Renewed expectations of rate cuts from the ECB supported continental shares, despite the weak data.
“The September PMI data could add some urgency to ECB rate cuts for the rest of this year,” said Brooks.
In company news, the German government said it would oppose a takeover of Commerzbank after Italian lender UniCredit raised its stake in the German bank to 21 percent, making it the largest shareholder.
Shares in both banks closed lower on the news.
Oil prices slipped as concerns about slower Chinese demand outweighed worries over an escalation of the conflict in the Middle East after Israel struck Lebanon on Monday.
And gold sat close to record highs after the Fed rate cut, which makes the precious metal more attractive to traders. Its price was also supported by ongoing geopolitical concerns as tensions heat up in the Middle East.
Key figures around 2030 GMT
New York – Dow: UP 0.2 percent at 42,124.65 points (close)
New York – S&P 500: UP 0.3 percent at 5,718.57 (close)
New York – Nasdaq Composite UP 0.3 percent at 17,998.97 (close)
London – FTSE 100: UP 0.4 percent at 8,259.71 (close)
Paris – CAC 40: UP 0.1 percent at 7,508.08 (close)
Frankfurt – DAX: UP 0.7 percent at 18,846.79 (close)
Tokyo – Nikkei 225: Closed for a holiday
Hong Kong – Hang Seng Index: DOWN 0.1 percent at 18,247.11 (close)
Shanghai – Composite: UP 0.4 percent at 2,748.92 (close)
Euro/dollar: DOWN at $1.1113 from $1.1160
Pound/dollar: UP at $1.3345 from $1.3316 on Friday
Dollar/yen: DOWN at 143.57 yen from 144.02 yen
Euro/pound: DOWN at 83.27 pence from 83.80 pence
Brent North Sea Crude: DOWN 0.8 percent at $73.90 per barrel
West Texas Intermediate: DOWN 0.9 percent at $70.37 per barrel
