The Fed and ECB officials have said interest rates will stay high until inflation comes down

London (AFP) - Stock markets posted solid gains in Europe and the US on Friday on signs that inflation is slowing on both sides of the Atlantic, rekindling hopes that central bankers will hold back on further interest rate increases that could weigh on economic growth.

Fears that rising oil prices would keep overall inflation high have weighed heavily on investor sentiment in September, which saw major indices fall to lows not seen in months.

But European markets got off to a strong start after data showed that eurozone inflation slowed in September to 4.3 percent, its lowest level since October 2021 – before the invasion of Ukraine by Russia that sparked inflation surges worldwide.

Later Friday, a key US inflation measure, the personal consumption expenditures (PEC) index, showed core inflation dropping to 3.9 percent in August, the slowest rate in over two years.

The measure, which strips out more volatile food and energy prices, spurred hopes that inflation was edging down toward the Fed’s target of two percent.

After weeks of worrying that interest rates would stay higher for longer, “this certainly feels like it falls in the pause category for the Fed at the next meeting,” said OANDA senior analyst Craig Erlam.

Easing oil prices after weeks of steady gains over supply fears added to the optimistic outlook.

“We’ve come a long way since last year’s inflation crisis,” said Callie Cox, an investment analyst at the trading platform eToro.

But analysts said caution will remain the watchword as bond yields remain high and blue-chip companies begin posting third-quarter earnings in the coming weeks, when CEOs often indicate if annual profit targets will be met or not.

“Investors have a long list of things to worry about, and core PCE still may not be low enough for the Fed to end its quest to crush inflation,” Cox said.

- Tech strength -

In Asian trading, Hong Kong jumped more than two percent thanks to a surge in tech firms including Alibaba and

Sydney, Singapore, Wellington, Mumbai and Jakarta also ended higher, while Tokyo, Manila and Bangkok dipped.

Mainland Chinese markets were closed for the start of an eight-day national holiday.

Despite the overall softness for stocks in September – the Dow Jones Industrials is still down three percent for the month – “as things stand the equity markets are still in positive territory for the year with US markets leading the way,” said Michael Hewson, chief market analyst at CMC Markets UK.

In the US, he noted, the Nasdaq 100 is up more than 30 percent year-to-date thanks “to a strong performance in the tech sector”.

London’s benchmark index also won support Friday after official data showed the British economy had performed much better than expected between the eve of the Covid pandemic and the second quarter of this year.

- Key figures around 1400 GMT -

New York - Dow: UP 0.2 percent at 33,725.55

New York - NASDAQ: UP 1.1 percent at 13,352.05

London - FTSE 100: UP 0.5 percent at 7,641.08 points

Frankfurt - DAX: UP 1.1 percent at 15,4489.56

Paris - CAC 40: UP 1.0 percent at 7,189.91

EURO STOXX 50: UP 1.1 percent at 4,206.07

Tokyo - Nikkei 225: DOWN 0.1 percent at 31,857.62 (close)

Hong Kong - Hang Seng Index: UP 2.5 percent at 17,809.66 (close)

Shanghai - Composite: Closed for a holiday

Euro/dollar: UP at $1.0579 from $1.0570 on Thursday

Pound/dollar: UP at $1.2220 from $1.2203

Euro/pound: UP at 86.60 pence from 86.59 pence

Dollar/yen: DOWN at 149.27 yen from 149.28 yen

Brent North Sea crude: UP 0.1 percent at $95.48 per barrel

West Texas Intermediate: FLAT at $91.74 per barrel