Overall sentiment on stock markets is positive after the better-than-expected inflation data in the US

London (AFP) - Stock markets steadied on Thursday after new US data suggested that inflation could indeed be slowing in the world’s biggest economy, taking the heat off the Federal Reserve to raise rates aggressively.

The US producer price index (PPI) rose by 9.8 percent year-on-year in July, the Labor Department calculated, down from 11.3 percent in June. And on a monthly basis, the index actually fell for the first time in over a year.

Coming after better-than-expected consumer price data the day before, the PPI numbers cheered investors as they suggested that the Fed could begin taking its foot off the pedal somewhat when it comes to raising borrowing costs to dampen inflation, traders said.

Wall Street opened sharply higher on the news, while European markets, which had been in the red earlier in the session, were mostly flat in mid-afternoon trading.

Nevertheless, leading Fed officials have already sought to temper expectations that the monetary policy tightening cycle could be coming to a complete halt.

The head of the Minneapolis Federal Reserve Bank, Neel Kashkari, warned: “We are a long way away from saying that we’re anywhere close to declaring victory”.

The chief of the Chicago Federal Reserve Bank, Charles Evans, said rates will continue to rise for “the rest of this year and into next year”.

“Investors are certainly in a more upbeat mood as the relief from the US inflation data ripples through the markets,” said OANDA analyst Craig Erlam.

However, “Fed policymakers remain keen to stress that the tightening cycle is far from done and a policy U-turn early next year is highly unlikely,” Erlam said.

After the Fed already raised interest rates by three-quarters of a percentage point twice this year, the financial markets had feared that a further hike of the same magnitude could choke off economic recovery.

“Though the probability of another 75-basis-point hike in September has fallen sharply, the debate about a hike of 50 or 75 basis points will continue, and the Fed will be keen to keep that debate going, until we get the next consumer price inflation and employment reports,” said Forex.com analyst Fawad Razaqzada.

Investors will therefore be listening out for further comments from policymakers over the next weeks to better gauge the likely pace of further rate hikes, traders said.

On the oil market, crude prices climbed as US recession fears eased – but remained around six-month lows and below the levels seen before the Ukraine war.

- Key figures at around 1345 GMT -

New York - Dow: UP 0.7 percent at 33,554.61 points

London - FTSE 100: DOWN 0.5 percent at 7,468.37

Frankfurt - DAX: FLAT at 13,705.29

Paris - CAC 40: FLAT at 6,524.92

EURO STOXX 50: UP 0.1 percent at 3,752.98

Hong Kong - Hang Seng Index: UP 2.4 percent at 20,082.43 (close)

Shanghai - Composite: UP 1.6 percent at 3,281.67 (close)

Tokyo - Nikkei 225: Closed for a holiday

Euro/dollar: UP at $1.0362 from $1.0299 Wednesday

Pound/dollar: DOWN at $1.2247 from $1.2213

Euro/pound: UP at 84.63 pence from 84.29 pence

Dollar/yen: DOWN at 131.92 yen from 132.89 yen

Brent North Sea crude: UP 1.4 percent at $98.73 per barrel

West Texas Intermediate: UP 1.6 percent at $93.43 per barrel