by Diana Mandia

(Reuters) – European stocks ended flat on Friday as investors digested the details of inflation data from both sides of the Atlantic and the size of future rate cuts, while falling oil prices weighed on energy stocks.

In Paris, the CAC 40 lost 0.13% to 7,630.95 points. In Frankfurt, the Dax fell by 0.03% and in London, the FTSE 100 dropped by 0.04%.

The EuroStoxx 50 index ended down 0.17%, while the FTSEurofirst 300 gained 0.06% and the Stoxx 600 0.09%.

The CAC 40 closed the month with a gain of 0.71%, while the STOXX gained 1.34%.

The last session of a turbulent August ended in the red for a good part of the European stock markets, which nevertheless recorded gains during most of the session, supported by the slowdown in inflation in the currency bloc and the reinforced bets of a second rate cut at the ECB meeting in September.

The consumer price index calculated according to European standards (HICP) in the 20 countries sharing the euro initially encouraged investors, as it slowed to 2.2% on an annual basis this month and is now very close to the institution’s 2% target, according to figures published on Friday.

While the data supports the scenario of a decline next month, investors are not overlooking the fact that underlying inflation presents a mixed picture, as services prices accelerated in August, something that could worry some ECB officials about wage growth and the depth of future cuts.

Chris Scicluna, an analyst at Daiwa Capital Markets, said the data are fully consistent with the need for another rate cut in September, while warning that the Governing Council still has a relatively “hawkish” bias. “They remain concerned that services inflation is too high,” he said, reiterating his bet of “only two more rate cuts this year.”

According to François Villeroy de Galhau, the governor of the Bank of France, it would be “fair and wise” for Frankfurt to lower its interest rates again in September, after the first increase in June, without having to first reach the 2% target, in order to avoid the risk of acting too late.

In the United States, Federal Reserve policymakers also received confirmation on Friday that the personal consumption expenditure (PCE) index continues to slow, reinforcing speculation that a first rate cut could be expected next month.

However, traders are opting for a cautious cut from the Fed, as consumer spending has grown solidly and US GDP growth in the second quarter has just been revised upwards, a sign that the US economy is doing rather well: they estimate the chances of a 25 basis point cut in September at 69.5%, while the probability of a 50 basis point cut is estimated at 30.5%, according to the CME Group’s FedWatch tool.

The release of the US government’s August jobs report next Friday will be key to clarifying expectations in this regard, as fresh signs of weakness in the labour market have helped to unsettle financial markets in recent weeks.

VALUES

The prospect of a further reduction in borrowing costs in Europe supported the European real estate sector on Friday, which rose by 1.47%.

The energy sector, however, ended down 0.87% due to the drop in oil prices after sources told Reuters that OPEC+ would be ready to increase oil production from October.

In Paris, Crédit Agricole gained 2.5%, posting the best performance in the CAC 40, after broker HSBC raised its recommendation to “buy”.

A WALL STREET

At the time of the European closing, the Dow Jones turned down and lost 0.12%, the Standard & Poor’s 500 gained 0.21% and the Nasdaq Composite advanced 0.36%.

In stocks, Marvell Technology climbed 8.5% after forecasting better-than-expected third-quarter results.

TODAY’S INDICATORS

U.S. consumer sentiment improved less than expected in August, according to the final results of the monthly University of Michigan survey, with the confidence index rising to 67.9 from 67.8 in July, while economists polled by Reuters had expected a reading of 68.0.

CHANGES

US inflation in line with expectations and a significant increase in US consumer spending are strengthening the dollar, with expectations of a 25 basis point Fed rate cut, down from 50, strengthening after the data release.

The dollar gained 0.30% against a basket of reference currencies, while the euro lost 0.17% to 1.1058 dollars.

RATE

Euro zone bond yields struggled to find direction on Friday despite a broad slowdown in prices, with services inflation likely to dampen prospects for the depth of cuts this year.

The yield on the ten-year German Bund stood at 2.2860% after gaining 0.3% on Friday.

In the United States, the yield on ten-year Treasuries rose by 1.5 basis points to 3.8824%, with economic data published on Friday supporting bets on a small rate cut in September.

OIL

Oil fell sharply on Friday, weighed down by prospects of greater supply from OPEC+ in October.

Brent lost 1.33% to $78.88 per barrel and American light crude (West Texas Intermediate, WTI) 2.38% to $74.10.

(Written by Diana Mandiá)

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