US and European stock markets gain despite interest rate rise concerns

Investors will have a keen eye on next week's US inflation data, which influences the Fed's moves

Spices are weighed for a customer at a stand at Grand Central Market in Los Angeles, California. The US Federal Reserve has a goal of bringing inflation down to its 2 per cent target range after priceShow more

Stock markets in the US and Europe settled higher on Friday following a lacklustre trading week dogged by concerns that central banks might continue to raise interest rates.

Wall Street edged up at the close of trading, but it was not enough to drag it to a first weekly loss after three weeks of gains, as investors were concerned over the possibility that the US Federal Reserve will increase interest rates again.

This will be the main theme going into next week as traders wait for key inflation data, a heavy influence the US central bank's moves.

After holding off on its tightening cycle in June, the Fed in July increased its policy rate for the 11th time since March 2022, as it aims to bring inflation down to its 2 per cent target range after prices hit a four-decade high in June 2022.

“[Next] week is all about the US CPI report and retail sales data. If the US demand for goods didn’t weaken that much and if inflation heated up, rate hike expectations for the November meeting might become the consensus,” analysts at Oanda said.

The S&P 500 advanced 0.14 per cent, the Dow Jones Industrial Average added 0.22 per cent, and the tech-heavy Nasdaq Composite inched up barely 0.1 per cent.

For the week, which was shortened by Monday's Labour Day holiday, the S&P 500 declined 1.3 per cent and the Nasdaq shed 1.9 per cent, ending two weeks of gains, while the Dow retreated 0.8 per cent.

Year-to-date, the indices are up 16.1 per cent, 4.3 per cent and 31.5 per cent respectively.

“For now, the market is positioned for no rate hike this year, but strong data and rising oil prices could change that expectation in the next few weeks,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, wrote in a note to clients.

“There is a growing chatter that the Fed could double its growth projection when it publishes an updated outlook later this month. I hope for the rest of the world that that does not happen.”

In Europe, major indices finished higher after tepid trading earlier on Friday.

London's FTSE 100 rose 0.5 per cent, lifted by data that showed slower hiring activity in August – a sign that the labour market was cooling down that in turn heightened expectations that the Bank of England will pause raising interest rates.

Frankfurt's DAX inched up 0.1 per cent, and Paris' CAC 40 added 0.6 per cent.

Earlier in Asia, stock markets extended losses in a week in which they had to cope with concerns over the prospects of China, the world's second-largest economy.

Tokyo's Nikkei 225 retreated 1.2 per cent, and the Shanghai Composite shed 0.2 per cent. Hong Kong's Hang Seng was closed as Typhoon Saola raged.

In commodities, oil prices settled higher on Friday to hit nine-month highs and post a second weekly gain in a row as tightening crude supplies helped offset concerns about China's economy.

Brent rose 0.81 per cent, or $0.73, to close at $90.65 a barrel, while West Texas Intermediate added 0.74 per cent, or $0.64, to settle at $87.51 a barrel. Both benchmarks were up about 2 per cent for the week.

Gold, meanwhile, was virtually flat, adding $0.20 to settle at $1,942.70 an ounce. The precious metal was lifted by the dollar's modest retreat.