San Francisco Frontiers - Wall Street shrugs off US economy contracting

The increase follows a surge in Wall Street's main stock indices on Wednesday, after investors welcomed comments by US Federal Reserve chief Jerome Powell suggesting its next super-sized increase could be its last.

The Fed hiked interest rates by three-quarters of a percentage point, its second hike in a row of that magnitude and the fourth increase this year.

"The reported basis for the positive response was a belief that the Fed Chair effectively lowered the temperature on the future pace of rate hikes," said market analyst Patrick J. O'Hare at Briefing.com.

In late morning trading, the Dow and S&P 500 were both 0.6 higher. Meanwhile, the tech-heavy Nasdaq Composite -- which jumped 4.1 percent on Wednesday, added 0.4 percent.

US gross domestic product (GDP) fell at an annual rate of 0.9 percent in the April-June quarter, following a 1.6 percent decline in the first quarter.

Two consecutive quarters of contraction in GDP is generally accepted as the technical definition of a recession.

Powell also said that future hikes will depend on economic data, and the markets took the GDP data as an indication that rate hikes will slow.

"Well, GDP was quite poor, so there won’t be a hattrick of 75 basis point hikes in September, that’s for sure," said Fawad Razaqzada at City Index and FOREX.com.

"The US GDP data has re-affirmed my view that the Fed will have to slow down the pace of the hikes and potentially go in reverse in early 2023," he added.

Meanwhile, a key inflation measure, the personal consumption expenditures price index, rose 7.1 percent in the latest three months, the same pace as in the first quarter, data showed.

The Fed and other central banks have been raising interest rates to rein in soaring inflation, but that risks slowing growth or even tipping the economy into recession.

Stephen Innes at SPI Asset Management said the market is "far too over-focused on the September 50 vs 75 debate, and not enough on the Fed's underlying message."

He said Fed policymakers have been clear they are "unequivocally prepared to allow a deeper economic slowdown and even a short-dipped recession if that is the price to be paid to get underlying inflation under control."

European stock markets finished mostly higher.

Europe's energy sector was in particular focus with Britain's Shell and France's TotalEnergies posting bumper second-quarter profits on elevated oil and gas prices.

Asian indices mostly climbed following a surge on Wall Street, fuelled by hopes that the US central bank could slow its pace of inflation-fighting interest rate hikes.

The dollar bounced back against the euro and pound from a sell-off that came in response to Powell's comments, but slumped to a month low against the yen.

Oil prices pushed on data showing a big drop in US stockpiles, as well as the market expectations that the Fed will slow interest rate hikes.

- Key figures at around 1530 GMT -

New York - Dow: UP 0.6 percent at 32,377.88 points

EURO STOXX 50: UP 1.2 percent at 3,652.20

London - FTSE 100: DOWN less than 0.1 percent at 7,345.25 (close)

Frankfurt - DAX: UP 0.9 percent at 13,282.11 (close)

Paris - CAC 40: UP 1.3 percent at 6,339.21 (close)

Tokyo - Nikkei 225: UP 0.4 percent at 27,815.48 (close)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 20,622.68 (close)

Shanghai - Composite: UP 0.2 percent at 3,282.58 (close)

Euro/dollar: DOWN at $1.0164 from $1.0200 Wednesday

Pound/dollar: DOWN at $1.2128 from $1.2158

Euro/pound: DOWN at 83.80 pence from 83.89 pence

Dollar/yen: DOWN at 134.46 yen from 136.57 yen

Brent North Sea crude: UP 0.9 percent at $107.58 per barrel

West Texas Intermediate: UP 0.8 percent at $98.04 per barrel

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C.Williams--SFF