European stock indexes faced a downward trend during early trading on Friday in response to the release of US consumer price data showing moderate increases in July. This cautious investor sentiment stems from concerns about the potential implications of inflation on market dynamics. The consumer price index rose by 0.2% last month, mirroring the same increase seen in June. While this prompted some initial relief in the markets on Thursday, as it was perceived to lower the likelihood of an imminent Federal Reserve rate hike, investors remain watchful for additional US economic indicators due later in the session.

San Francisco Federal Reserve Bank President Mary Daly’s remarks also contributed to the tempered optimism. She indicated that more progress is necessary before the Fed can be confident in its efforts to combat inflation effectively. These mixed signals have cast a shadow over market confidence, leading to Asian stocks hitting a one-month low and European indexes experiencing losses. The STOXX 600 index declined by 0.7% at 0924 GMT, while the MSCI World Equity index was down 0.3%, suggesting a minor weekly decline overall.

The investor sentiment is primarily centered around US producer price and consumer sentiment data anticipated later in the session. Market analysts are hoping that the upcoming data releases will provide clarity on the inflation situation and the broader economic outlook.

Ben Laidler, global markets strategist at eToro, noted, “We’re still getting a mixed message from the inflation numbers.” He expressed the hope that the latest data would confirm the previous day’s relief and support the notion that inflation is not accelerating significantly, and the overall trend is still towards easing inflation.

The global economic landscape also remains affected by developments outside the US. In Australia, the central bank’s head indicated that policy was in the “calibration stage,” signaling that the worst of inflation might be behind. However, the possibility of further policy adjustments remains contingent on incoming data and evolving risks.

Weak data from China is also playing a role in shaping sentiment. Data released on Wednesday indicated signs of deflation in China, fueling concerns that the country may be entering a period of slower economic growth similar to Japan’s “lost decades.” The impact of these concerns is evident in the performance of Chinese property companies, including the significant decline of Country Garden, a major developer, which forecasted a substantial net loss in the first half of the year.

Against this backdrop, the US dollar maintained its stability, with the dollar index at 102.58, poised for its fourth consecutive weekly gain. The yen reached a six-week low of 144.89 per dollar, although trading volumes were reduced due to a public holiday in Japan.

Euro zone bond yields saw an increase, with Germany’s benchmark 10-year yield rising by approximately five basis points to 2.574%. The euro itself remained steady at $1.0981, while the pound gained 0.2% following GDP data showing some unexpected growth in the UK’s second quarter performance. Despite this growth, the UK is the only major advanced economy yet to fully regain its pre-COVID levels, as indicated by the data released on Friday. Investors are now awaiting UK inflation data scheduled for release next Wednesday.

Oil prices remained close to recent highs, with Brent crude declining by 0.4% to $86.07 and West Texas Intermediate crude futures decreasing by 0.4% to $82.48. The International Energy Agency (IEA) noted that oil demand growth for the next year is expected to be slower than initially forecasted. This projection reflects factors such as lackluster macroeconomic conditions, a tapering post-pandemic recovery, and the increasing adoption of electric vehicles.