Markets rise even as eurozone economy falters

London: Europe’s main stock markets mostly rose Tuesday as dealers stoically came to terms with eurozone data showing both an economic slowdown and accelerating inflation, while US equities rebounded in early action, analysts said.

Frankfurt stocks got off on an uncertain start but later rose along with Paris. London stocks took off on strong second-quarter BP results — and despite growing expectation that the Bank of England could raise British interest rates this Thursday to the highest level for more than nine years.

Economic growth in the 19-nation eurozone slowed in the second quarter this year, data showed, as concerns rose over the impact of global trade tensions fuelled by Washington.

Gross domestic product (GDP) expansion in the single currency bloc slowed to 0.3 percent in the three months to June, from 0.4 percent the previous quarter.

Eurozone inflation meanwhile accelerated in July to 2.1 percent on high oil prices. That was the fastest rate since late 2012 and pushed the euro higher versus the dollar.

– Inflation tempers GDP impact –

“A disappointing eurozone GDP reading was countered by a better-than-forecast inflation figure, flattening out the potential reaction to either number,” noted Spreadex analyst Connor Campbell.

“The euro-damaging nature of that (GDP) number was tempered by the news that inflation hit 2.1 percent in July, the metric crossing the European Central Bank’s long-held 2.0-percent target for the first time since 2012.”

Uncertainty over trade helped ECB governors last week decide to leave interest rates at historic lows even though they stuck to plans to halve “quantitative easing” or mass bond-buying from October before wrapping up the stimulus at the end of 2018.

The latest data has now placed ECB governors in a quandary, according to Capital Index research director Kathleen Brooks.

“Ultimately, stocks could come under pressure as the latest eurozone data suggests that the ECB is in a bind — weaker GDP, yet inflation is rising at its fastest rate since December 2012,” Brooks told AFP.

“Considering the ECB has an inflation mandate only, this could indicate that rates may have to rise just at the time that growth is starting to slow. This is good news for the euro, bad news for stocks.”

– BoJ tweaks policy –

US stocks meanwhile rebounded at open, following several days of retreat after tech giants released disappointing earnings reports.

“With earnings season rolling on and appearing to be on track to at least meet lofty expectations, and last week’s second quarter GDP report showing a sharp rise in output … both the economy’s and earnings’ growth rates may be at or near peaks,” Charles Schwab analysts said in a note.

However, “trade uncertainty remains high and continues to have implications for both the economy overall, and corporate earnings”, they added.

Earlier, Asian equities traded mixed as the Bank of Japan tweaked its monetary policy in a bid to make its massive easing programme sustainable.

Tokyo’s key Nikkei index closed marginally higher after the BoJ announced it had revised down inflation forecasts while making minor changes to its ultra-loose monetary policy for the first time in nearly two years.

– Key figures at 1340 GMT –

New York – Dow Jones: UP 0.4 percent to 25,394.10 points

London – FTSE 100: UP 0.9 percent at 7,772.96

Frankfurt – DAX 30: UP 0.1 percent at 12,806.79

Paris – CAC 40: UP 0.5 percent at 5,519.16

EURO STOXX 50: UP 0.6 percent at 3,169.13

Hong Kong – Hang Seng: DOWN 0.5 percent at 28,583.01 (close)

Shanghai – Composite: UP 0.26 percent at 2,876.40 (close)

Tokyo – Nikkei 225: UP 0.04 percent at 22,553.72 (close)

Euro/dollar: UP at $1.1720 from $1.1706 at 2100 GMT

Pound/dollar: UP at $1.3138 from $1.3133

Dollar/yen: UP at 111.56 yen from 111.04 yen

Oil – Brent Crude: DOWN 62 cents at $74.93 per barrel

Oil – West Texas Intermediate: DOWN 92 cents at $69.21