European waver as investors await US inflation data

European stocks dipped slightly and Wall Street futures remained lower on Friday after the Federal Reserve’s preferred measure of inflation inched higher in line with expectations.

The regional Stoxx Europe 600 fell 0.1 per cent, Germany’s Dax slipped 0.2 per cent, erasing earlier gains, and London’s FTSE 100 traded between gains and losses. Contracts tracking Wall Street’s benchmark S&P 500 and those tracking the tech-heavy Nasdaq 100 were down 0.2 per cent and 0.4 per cent, respectively, ahead of the New York open.

Shares in Intel traded 9.5 per cent lower in pre-market trading after the chipmaker said revenue in the current quarter is forecast to come in about $3bn below analysts’ expectations. Oil major Chevron and credit card group American Express are due to report quarterly figures later on Friday.

The moves in equity markets came as December’s core personal consumption index, which omits energy and food inflation, increased by 0.3 per cent as expected after rising 0.2 per cent month on month in November.

US government bonds remained under pressure, with the yield on the 10-year US Treasury dipping 0.02 percentage points to 3.52 per cent after the inflation figures were published, though it remained 0.04 percentage points higher on the day. Bond yields move inversely to prices.

Although still near a multi-decade high, headline US inflation fell to its lowest level in more than a year in December. Yet Fed chair Jay Powell has insisted core inflation “often gives a more accurate indicator of where overall inflation is headed”.

US equities had rallied on Thursday after gross domestic product for the fourth quarter of 2022 came in ahead of projections, rising at an annualised pace of 2.9 per cent. That was above the 2.6 per cent economists had forecast, marking a milder slowdown from 3.2 per cent in the previous quarter.

“With inflation well above target, this fully justifies ongoing interest rate increases from the Federal Reserve,” said James Knightley, chief international economist at ING.

“Dig a little deeper,” however, and it seems “we have good growth but not for great reasons”, Knightley added. Consumer spending rose less than expected, residential investment fell sharply and non-residential fixed investment, “basically business capex,” grew just 0.7 per cent.

Instead, much of the rise in GDP reflected “increasingly involuntary” inventory building by mining, construction and manufacturing groups as consumer demand continues to soften, he said.

Investors firmly expect the Fed to raise rates by a quarter percentage point next week, marking a slowdown from the 0.5 percentage point move implemented in December. Powell’s forward guidance and the language he adopts during a press conference after the rate decision is announced are therefore likely to be the focus of attention.

A measure of the dollar’s strength against a basket of six currencies was up 0.1 per cent on Friday, while prices for Brent crude, the international oil benchmark, rose 1.3 per cent to $88.62 a barrel.

In Asia, Hong Kong’s Hang Seng index rose 0.5 per cent, Japan’s benchmark Nikkei 225 increased almost 0.1 per cent and South Korea’s Kospi gained 0.7 per cent. Markets in China are closed for the lunar new year holiday.