Stocks have rallied on signals of easing rate hikes from Federal Reserve chief Jerome Powell

London (AFP) - Stocks diverged Thursday after Federal Reserve boss Jerome Powell signalled a moderation in interest rate hikes, as fears over the health of the global economy persist.

Asian and European equities mainly tacked higher as investors eyed news that eurozone unemployment plumbed to a record-low 6.5 percent in October.

But on Wall Street, the three main indices were down in mid-afternoon trading after a slew of mixed data from the United States, as markets balance recession concerns with relief over inflation slowing down.

One survey showed the US manufacturing sector contracted in November for the first time since mid-2020 when the country struggled with the coronavirus pandemic.

“Manufacturing clearly is struggling in the wake of significantly higher borrowing costs,” said Kieran Clancy, senior US economist at Pantheon Macroeconomics.

Another release meanwhile showed a closely-watched measure of US inflation edged down in October.

“The mood has been enhanced by the reaction to Fed chairman Powell’s comments on the potential for a dialling down of the pace of rate hikes when the FOMC (Fed policy) next meets in just under a fortnight’s time,” said Michael Hewson of CMC Markets.

“However the gains are being tempered by concerns over the extent of some of the economic data weakness being seen today,” he added.

Oil prices climbed before this weekend’s OPEC output meeting of key crude producing nations.

- ‘Moderate’ pace -

In a much-anticipated speech Wednesday, Powell said the full effects of the Fed’s belt-tightening had yet to be felt but that it “makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down”.

He signalled the US central bank’s December gathering would likely see officials lift borrowing costs by 50 basis points.

The Fed has yanked up rates by a bumper 75 points at each of the last four meetings.

However, Powell did say policy would need to remain tight “for some time” to restore price stability, echoing comments from other Fed officials who suggested there might not be any cuts until 2024.

Analysts said the reaction to Powell’s remarks – which had been expected to be his most dovish in some time – highlighted a sense of relief among investors that a long-hoped-for pivot was on the cards.

On Thursday, the Fed’s preferred inflation measure – the personal consumption expenditures (PCE) price index – rose six percent from a year ago in October, down from a larger jump the month before.

- Asian gains -

In Asia, Hong Kong extended gains into a third day, with tech giants including Alibaba and Tencent tracking massive gains in their US-listed stock, while Shanghai was also up.

Equities were also helped by signs that China is edging towards a more pragmatic approach to fighting the coronavirus, having hammered the economy this year with its strict zero-Covid strategy of lockdowns and mass testing.

After widespread unrest against the measures – and calls for more political freedoms – authorities have announced moves aimed at loosening some restrictions.

The dollar sank, having soared across the board this year as Fed monetary policy diverged more and more from other central banks.

- Key figures around 1645 GMT -

New York - Dow: DOWN 0.9 percent at 34,276.35 points

EURO STOXX 50: UP 0.5 percent at 3,984.50

London - FTSE 100: DOWN 0.2 percent at 7,558.49 (close)

Frankfurt - DAX: UP 0.6 percent at 14,490.30 (close)

Paris - CAC 40: UP 0.2 percent at 6,753.97 (close)

Tokyo - Nikkei 225: UP 0.9 percent at 28,226.08 (close)

Hong Kong - Hang Seng Index: UP 0.8 percent at 18,736.44 (close)

Shanghai - Composite: UP 0.5 percent at 3,165.47 (close)

Euro/dollar: UP at $1.0498 from $1.0406 on Wednesday

Dollar/yen: DOWN at 135.60 yen from 138.07 yen

Pound/dollar: UP at $1.2248 from $1.2058

Euro/pound: DOWN at 85.69 pence from 86.30 pence

Brent North Sea crude: UP 1.2 percent at $88.00 per barrel

West Texas Intermediate: UP 1.9 percent at $82.07 per barrel