European stocks mostly lower as softer U.S. PPI supports rate hold

European equities trimmed early gains on Thursday, with a number of indices in the region closing lower as a cooler-than-expected U.S. producer price report reinforced expectations that the Federal Reserve will keep interest rates unchanged next month.

The pan-European Stoxx Europe 600 Index was flat, continuing to trade just below all-time highs.

Germany’s DAX fell 0.2%, while France’s CAC 40 declined 0.3%. London’s FTSE 100 dragged on broader continental sentiment, falling 0.6% as energy producers tracked a retreat in crude oil benchmarks.

Cool PPI, in-line CPI

Equity desks drew fresh support from Thursday’s U.S. Producer Price Index report, which provided additional evidence that pipeline inflation pressures are decelerating.

Headline wholesale prices were unchanged at 0.0% month-on-month in July, coming in beneath Wall Street forecasts for a 0.2% advance. Core PPI - which strips out volatile food and energy costs - rose 0.2% on the month, also undershooting consensus estimates of 0.3%.

On an annual basis, headline PPI decelerated to 4.7% against the 4.9% projected, while annual core PPI printed at 4.2%, marginally above the 4.1% expectation.

The softer monthly producer price figures follow Wednesday’s on-target Consumer Price Index report, which showed headline CPI slowing to 3.4% year-on-year and core inflation anchoring at 2.5%.

Together with last week’s shock contraction of 23,000 U.S. nonfarm jobs in July, the twin disinflationary reports have effectively removed pressure on central bank officials to implement near-term monetary tightening.