Stocks Rise Despite Inflation Report Fueling Rate Hike Fears

Stock markets in the US and Europe closed on Friday with gains despite concerns about a potential interest rate hike by the Federal Reserve. The FTSE 100 index ended up 41.52 points, or 0.4%, at 10,650.44, but had fallen 1.7% over the course of the week, making it its worst since July. The S&P 500 added 1.1%, and the Nasdaq Composite surged 1.3%. In London, oil prices came off earlier highs, setting the stage for a confident trade on the New York Stock Exchange.

The US inflation report showed that consumer price inflation was steady in August at 3.4% year-on-year, as expected. However, core consumer price growth was hotter-than-expected, rising 0.3% from July to August. Analysts at Barclays commented that the data is supportive of a rate hike next week.

The Federal Reserve's decision on interest rates has become increasingly likely, with an 87% chance of a 25 basis point hike according to the CME FedWatch Tool. This is up from 72% just a day prior. The Bank of England will announce its own rate decision on Thursday, and while it is not expected to hike, Barclays analysts Sanjay Raja and Maui Brennan note that the tides are turning in favor of inflation.