US and European stocks rose on the first day of December as investors grew more confident there would be interest rate cuts next year -- despite a warning from US Federal Reserve Chair Jerome Powell.
Equities markets went on a tear last month as investors increasingly bet that the Fed will begin to cut rates in the first half of 2024, thanks to a string of data suggesting its tightening cycle is finally getting inflation under control.
The gains were extended Friday, with all three major indexes on Wall Street closing higher, along with those in London, Paris and Frankfurt, while markets in Asia finished mixed.
The Fed has taken aggressive action to tackle runaway inflation, and has successfully slowed the rate at which prices have been increasing this year.
Nevertheless, its decision to lift its benchmark lending rate to a 22-year high and hold it there has so far failed to bring inflation down to its long-run target of two percent.
Powell's caution unheeded
Powell tried to dampen expectations at a Friday appearance in the US state of Georgia, saying it remains "premature" to speculate on when the Fed will start cutting rates despite progress on inflation.
He insisted the central bank is "prepared to tighten (monetary) policy further if it becomes appropriate to do so."
But Wall Street was not listening, according to CFRA chief investment strategist Sam Stovall, who told AFP that "the continued expectation is that the Fed has finished raising rates."
Wall Street now expects the Fed will start cutting its key lending rate "in the end of the first quarter" next year, he added.
Some analysts, however, said it was simply too soon for central banks to declare victory over inflation.
"It is still too early to eliminate the tightening bias in the Fed's forward guidance," according to Brian Rose at UBS Global Wealth Management.
Cutting inflation while avoiding a recession -- known as a "soft landing" -- is challenging to pull off, but the US central bank recently suggested it could be on track to do so.
Survey data released Friday showed US manufacturing activity contracted for the 13th straight month in November.
Meanwhile, the Fed's preferred gauge of inflation slowed further in October, according to US data released on Thursday, while other recent figures pointed to a softening in US consumer spending and the labor market.
Progress in Europe
Data this week also showed eurozone inflation came in lower than forecast, giving the European Central Bank room to pause on rates and consider cutting next year.
The outlook was less clear in Britain, where the rate of annual inflation remains the highest among G7 rich nations.
Bank of England officials have indicated that they do not see UK rate cuts any time soon, helping to boost the pound against main rivals.
And in Asia, the ongoing weakness in China's economy remains a problem, even as authorities move to put in place measures to kick-start growth.
"There's still a lot of pessimism -- there's still a wait-and-see attitude," said James Fletcher of Ethos Investment Management.
