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European stocks mixed as traders assess US Fed's inflation shift

Edmund Heaphy
·Finance and news reporter
·2 mins read
WASHINGTON, Aug. 27, 2020 -- Photo taken on Aug. 27, 2020 in Arlington, Virginia, the United States, shows a screen showing U.S. Federal Reserve Chairman Jerome Powell delivering a speech to the Kansas City Fed's annual Jackson Hole research conference, which is held virtually this year because of the pandemic. Jerome Powell announced on Thursday that the central bank will seek to achieve inflation that averages 2 percent over time, a new policy strategy that will likely keep short-term interest rates near zero for years. (Photo by Liu Jie/Xinhua via Getty) (Xinhua/Liu Jie via Getty Images)
The Federal Reserve will now tolerate inflation “moderately” above its 2% target, Jerome Powell said. Photo: Xinhua/Liu Jie via Getty Images

European stocks were mixed on Friday as markets continued to try and make sense of the historic shift on inflation announced by US Federal Reserve chair Jerome Powell.

On Thursday, Powell said that the central bank would launch a new monetary policy framework that will likely see interest rates in the US remain low for longer.

The Federal Reserve will now tolerate inflation “moderately” above its 2% target, Powell said, noting that persistently low inflation in the US over the last eight years has caused a series of economic problems.

The pan-European STOXX 600 index (^STOXX) fell by around 0.3%, while London’s FTSE 100 (^FTSE) was up by almost 0.1%

Germany’s DAX (^GDAXI) fell by around 0.3% after a steep fall in consumer sentiment in August, while France’s CAC 40 (^FCHI) was down marginally.

READ MORE: Fed Chair Powell unveils effort to target 'moderately' higher inflation

“Markets haven’t got over-excited by the US Federal Reserve’s new stance on letting inflation run higher, despite it implying that interest rates will stay lower for longer – normally something that would benefit equities,” said Russ Mould, the investment director of AJ Bell.

“One could argue that the Fed following this path was already expected by the market, hence why stocks haven’t surged ahead.”

The declines in Europe followed a broadly positive session in Asia.

Shanghai’s SSE Composite Index (^SSEC) rose by 1.6%, while the Hang Seng (^HSI) closed 1.4% in the green in Hong Kong.

Japan’s Nikkei (^N225) fell by 1.4% after the country’s long-serving prime minister, Shinzo Abe, said he would resign due to ill health.

READ MORE: Easing of lockdown measures bumps business confidence

Tthe KOSPI Composite Index (^KOSPI) in South Korea climbed by around 0.4%, while Australia’s ASX 200 (^AXJO) fell by more than 0.8%.

Futures were also pointing to a positive open for stocks in the US on Friday as traders continued to digest stubbornly high unemployment data and Federal Reserve chair Jerome Powell’s pledge to try and nudge inflation higher.

Futures on the S&P 500 (ES=F) were up by more 0.3%, putting the index on track for its seventh straight day of gains. Dow Jones Industrial Average futures (YM=F) rose by almost 0.5%.

Futures on the Nasdaq (NQ=F), which snapped its five-day winning streak on Thursday, fell marginally.

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