European stock markets continued their upward trajectory as cooling inflation fueled optimism for deeper rate cuts by the European Central Bank (ECB). Germany’s DAX reached a new high after a surprising drop in consumer prices for August, further driving the rally.

Expectations for significant rate cuts by central banks, particularly in Europe, continued to bolster stock performance. The DAX achieved a fresh peak on Thursday, spurred by cooler-than-anticipated inflation data. In contrast, Wall Street experienced mixed results this week, weighed down by a slump in technology shares following Nvidia’s disappointing quarterly earnings.

European markets are set to end the week on a high note for the fourth consecutive week. The Euro Stoxx 600 climbed by 1.61%, the DAX advanced by 1.5%, and the CAC 40 rose by 0.84% over the past five trading days. The FTSE 100 also saw a gain of 0.62%.

The rally was broad-based, with all sectors showing positive performance, particularly industrial and consumer stocks. The Pan-European Stoxx 600 is nearing a new high, driven by Germany’s unexpected cooling in consumer prices for August.

Preliminary inflation data indicated a year-on-year decrease to 2%, significantly below the estimated 2.3%. Additionally, Spain’s annual inflation sharply eased to 2.2% from 2.8% the previous month, according to flash data.

These favorable inflation readings have strengthened the belief that the upcoming Eurozone Consumer Price Index (CPI) will reflect a continued downtrend, potentially prompting the ECB (European Central Bank) to deliver a rate cut next month. Markets are also anticipating two additional rate cuts in October and November.

This week, industrial stocks outperformed, with Siemens (SIE) rising 3.3% and Safran increasing by 0.94%. However, despite a broad rally on Thursday, large market cap companies showed mixed results. Novo Nordisk shares rose by 2.6%, while LVMH and ASML saw declines of 0.51% and 2.65%, respectively. Technology stocks remained under pressure following Nvidia’s earnings report.

The growing expectations for rate cuts have also affected the euro, with EUR/USD falling for the second consecutive trading day on Thursday, hovering just above 1.107 in early Asian trading on Friday. The British pound similarly weakened against the US dollar after reaching a 29-month high on Monday, with GBP/USD pulling back to just above 1.3160 on Friday.

In the US, stock markets displayed mixed results as Wall Street’s rally lost steam following a stronger-than-expected GDP report for the second quarter, which dampened hopes for more aggressive rate cuts by the Federal Reserve.

Preliminary data showed the US economy grew at an annualized rate of 3% in the second quarter, surpassing the initial estimate of 2.8%. The upcoming Personal Consumption Expenditures (PCE) report will be closely monitored for further insights into the nation’s inflation trend.

Over the past five trading days, the Dow Jones Industrial Average (US30) rose by 0.39% to a new high, supported by industrial stocks, while the S&P 500 (US500) fell by 0.76%, and the Nasdaq (US100) Composite dropped by 2.02%, weighed down by technology shares.

At the sector level, all eleven sectors posted weekly gains, with Financials and Industrials leading the way, up by 1.61% and 1.97%, respectively. However, Technology and Consumer Staples underperformed, gaining just 0.31% over the past five trading days, with the potential to end the week in the negative.

Nvidia (NVDA) reported quarterly earnings that exceeded market expectations, but its revenue guidance for the current quarter fell short of lofty forecasts. The chipmaker’s shares dropped by 6.38% on Thursday and were down 5% for the week.

Other stocks in the Magnificent Seven (MAGS) group were mostly lower compared to last week as the tech sector sell-off continued, with Apple (AAPL) being the sole exception, posting a weekly gain of 2.34%.

In the Asia-Pacific region, major benchmarks extended their weekly gains, with Japan’s Nikkei 225 up by 0.6%, Australia’s ASX 200 rising by 0.7%, and China’s Hang Seng Index advancing by nearly 3%.

Chinese stock markets, in particular, posted strong gains in August, supported by ongoing efforts to improve market sentiment. The Hang Seng Index climbed 8% over the past four weeks, rebounding from a four-month low in July.