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European stocks rally on inflation drop

LONDON (AFP) – European stock markets closed out the first half of the year with solid gains yesterday after eurozone inflation slowed slightly more than expected.

Consumer prices rose 5.5 per cent this month, down from from 6.1 per cent in May, according to the European Union’s Eurostat agency.

The drop was slightly better than analysts’ consensus forecast for a drop to 5.6 per cent.

European Central Bank president Christine Lagarde said this week that another interest rate increase was likely in July in efforts to combat inflation. But some analysts say the June inflation data raises hopes of a pause in the rate-hike campaign.

“European stocks are ending the week on a high, buoyed by another encouraging inflation report that will soon support the end of the ECB’s tightening cycle,” noted senior market analyst Craig Erlam at OANDA trading group.

In the United Sates (US), the Federal Reserve is set to keep lifting US borrowing costs following strong data this week surrounding the world’s biggest economy.


Traders in Hong Kong and Shanghai trod with caution yesterday after fresh data on China’s economy showed further slowing, with factory activity contracting for the third straight month while growth in the services and construction industries slowed.

A string of similar data in recent months has fanned speculation that authorities will unveil measures to kickstart the economy. But aside from some small interest rate cuts, officials have unveiled very little of substance to reassure investors, which has kept equities subdued.

Meanwhile, commentators have warned that a big-buck spending spree such as those seen in the past was unlikely, fuelling worries of an extended period of weak growth.

China’s Cabinet yesterday said it would “take effective measures to enhance the momentum of development, optimise the economic structure, and promote the sustained recovery of the economy… in a timely manner”.

But Robert Carnell, of ING, said: “The market continues to fixate on the possibility of stimulus measures, and in due course, we do expect the government to step in and provide some support.

“However, we remain unconvinced that this will resemble anything like the financial bazooka that some want to see.”

Traders were keeping an eye on Japan after the yen at one point softened to more than 145 per dollar – its weakest since November – stoking expectations authorities will step in to support the currency.

It also tumbled to a fresh 15-year low against the euro.

The yen has been battered against its major peers this year owing to the Bank of Japan’s refusal to hike rates, even as inflation edges higher and most other central banks press on with their tightening campaigns.