Stock markets fluctuate as US inflation eases

Stock markets seesawed Friday as data showed a key US inflation indicator easing in December, opening the door for the Federal Reserve to slow its rate-hike campaign.

Wall Street's three main indices rose after a mixed opening while London was flat and Frankfurt and Paris retreated in afternoon deals.

Markets had risen the day before after official figures showed the US economy grew more than expected in the fourth quarter of last year.

Fresh data on Friday showed the Fed's preferred inflation gauge, the personal consumption expenditures (PCE) price index, rising 5.0 percent last month from a year ago.

"The key takeaway from the report is that it showed a continued moderation of inflation pressures," said Briefing.com analyst Patrick O'Hare.

But, he added, consumer prices are "still too high for the Fed's liking ... and will keep the Fed in a vigilant, inflation-fighting mode."

Investors hope the Fed, which meets next week, will lift interest rates by just 25 basis points, having slowed its pace of increases last month following four straight bumper hikes aimed at bringing inflation down from multi-decade highs.

The US economy grew 2.9 percent in the fourth quarter of 2022, exceeding analyst estimates with help from resilient consumer spending.

While the data did not eliminate recession fears, it offered a reason for optimism that the US central bank will manage to lower inflation without tipping the economy into a major downturn.

Central banks spent last year ramping up borrowing costs to battle soaring prices and any sign of strength in the economy was taken as a bad sign that policymakers would continue to tighten policy sharply, threatening companies' profits.

The European Central Bank is also holding a monetary policy meeting next week, with analysts expecting a 50-basis-point rate increase.

Concern towards the end of the year focused on a possible global recession caused by the restrictive policies, with several observers warning that top economies were likely to suffer a so-called hard landing.

Thursday's US growth figures showed a slowdown in 2022 from the previous year but a better-than-expected performance, which was described as a "Goldilocks scenario" -- where the figures are neither too good nor too bad.

Yet lingering jitters persist of a possible downturn.

"There being a time lag between interest rate hikes and the effect on the economy, it remains difficult to predict how much of the Federal Reserve's actions so far are having the desired dampening effect," noted Interactive Investor analyst Richard Hunter.

"More pessimistic investors are suggesting that the latest quarter of growth could be the last before previous hikes take full effect, potentially pushing the economy towards recession this Spring."

Investors are also keeping a nervous eye on earnings season, which has thrown up some disappointing figures and downbeat forecasts, including from chip titan Intel.

Asian markets finished higher ahead of the latest US inflation data. Shanghai was closed for the Lunar New Year break and reopens next week.

New York - Dow: UP 0.2 percent at 34,009.66 points

London - FTSE 100: FLAT at 7,759.27

Frankfurt - DAX: DOWN 0.1 percent at 15,112.72

Paris - CAC 40: DOWN 0.2 percent at 7,084.99

EURO STOXX 50: DOWN 0.1 percent at 4,168.18

Tokyo - Nikkei 225: UP 0.1 percent at 27,382.56 (close)

Hong Kong - Hang Seng Index: UP 0.5 percent at 22,688.90 (close)

Shanghai - Composite: Closed for a holiday

Euro/dollar: DOWN at $1.0871 from $1.0892 on Thursday

Pound/dollar: DOWN at $1.2388 from $1.2403

Euro/pound: DOWN at 87.75 pence from 87.78 pence

Brent North Sea crude: UP 0.7 percent at $87.91 per barrel

West Texas Intermediate: UP 0.7 percent at $81.59 per barrel