Stock markets inch higher on rate hopes

US and European shares nudged higher Monday as investors were torn between hopes of further interest rate cuts and weak eurozone economic data.

Stock markets rallied last week after the US Federal Reserve announced a bumper interest rate cut, its first since 2020, as inflation is cooling.

“Visions of further rate cuts remain a supportive factor,” said Patrick O’Hare, an analyst at Briefing.com.

But, he added, “there is some appreciation for the possibility that a market trading with a rich valuation could experience a consolidation period.”

This Friday’s release of the personal consumption expenditures index, the Fed’s preferred inflation metric, could shed light on the next rate move.

European stock markets rose Monday despite data showing eurozone business activity declined for the first time in seven months in September after summer boost from the Paris Olympics.

“There are serious doubts over the health of the Eurozone economies,” said David Morrison, analyst at Trade Nation.

“This morning’s release of a dismal set of Manufacturing and Services PMIs from Germany, France and the Eurozone only added to these concerns,” Morrison said.

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.

O’Hare said the PMI figures did not drag stock prices lower because “they have increased the possibility of a rate cut by the ECB (European Central Bank) at its October meeting”.

In company news, shares in Italian lender Unicredit fell 2.5 percent after it raised its stake in German rival Commerzbank to 21 percent, making it the largest shareholder ahead of the German state.

The move fuelled speculation that UniCredit might launch a takeover bid despite little interest from Berlin.

Commerzbank shares were down 0.7 percent.

The euro fell against the dollar as the weak European data suggests that European rates could fall more than their trans-Atlantic counterparts.

In Asia, Shanghai rose as China’s central bank cut its 14-day lending rate, raising hopes for more growth-boosting measures in the world’s second-largest economy.

Another round of data showed the Chinese economy remained weak.

Youth unemployment in China hit its highest level this year, as leaders struggle to kickstart growth, particularly for the troubled property sector.

Hong Kong shares dipped while Tokyo was closed for a holiday.

Stocks in Colombo fell after self-avowed Marxist Anura Kumara Dissanayaka won Sri Lanka’s presidential election, fuelling worries about a $2.9 billion International Monetary Fund bailout that demands steep tax hikes and other austerity measures.

Oil prices edged up on worries about an escalation of the conflict in the Middle East after strikes by the Israeli army in Lebanon on Monday, which outweighed concerns about slower Chinese demand.

Gold sat around record highs around $2,650 after the Fed rate cut, which makes the precious metal more attractive to traders, and on geopolitical concerns.

– Key figures around 1340 GMT –
New York – Dow: UP 0.1 percent at 42,114.99 points

New York – S&P 500: UP 0.2 percent at 5,711.24

New York – Nasdaq Composite UP 0.1 percent at 17,965.08

London – FTSE 100: UP 0.2 percent at 8,243.59

Paris – CAC 40: FLAT at 7,501.02

Frankfurt – DAX: UP 0.6 percent at 18,832.80

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)

Pound/dollar: UP at $1.3322 from $1.3316 on Friday

Euro/dollar: DOWN at $1.1133 from $1.1160

Dollar/yen: DOWN at 143.81 yen from 144.02 yen

Euro/pound: DOWN at 83.57 pence from 83.80 pence

Brent North Sea Crude: UP 0.1 percent at $74.53 per barrel

West Texas Intermediate: UP 0.2 percent at $71.16 per barrel