European equities moved higher on Thursday as an in-line U.S. inflation report strengthened expectations that the Federal Reserve could leave interest rates unchanged at its September meeting.
The pan-European Stoxx Europe 600 Index gained 0.2%, putting the benchmark back on course towards record highs. Major regional markets also advanced, with Germany’s DAX and France’s CAC 40 both rising 0.3%.
London outperformed, with the FTSE 100 climbing 0.6% as investors also responded positively to fresh UK economic growth figures.
U.S. CPI Reduces Expectations for September Rate Hike
Wednesday’s U.S. Consumer Price Index report provided reassurance for global markets after headline inflation increased 0.1% month-on-month in July, while core inflation stood at 2.5% year-on-year.
The figures broadly matched expectations and followed last week’s unexpected contraction in U.S. nonfarm payrolls. Together, the data reduced concerns that the Federal Reserve would need to tighten monetary policy again in the immediate future.
Money markets responded by lowering the implied probability of a 25-basis-point interest rate increase at the Fed’s September 16 meeting to around 40%, compared with almost 67% a week earlier.
The decline in expectations for higher borrowing costs provided additional support for equities and reduced one of the principal sources of uncertainty facing global markets.
“The US July CPI number offered up nothing in the way of a surprise,” said Sam Hill, head of market insights at Lloyd’s Bank.
“The market is likely to still view it as corroborating the deceleration seen last month, creating additional breathing space for the Fed It is hard to see a September hike on that basis. The hawks’ concerns will continue to develop, but a trigger is lacking against that mix for the moment.”
UK Economy Expands 0.4% in Second Quarter
UK economic data provided an additional boost to sentiment in London, with gross domestic product expanding 0.4% during the second quarter.
The result matched economists’ forecasts and indicated that the British economy maintained positive momentum despite elevated interest rates.
Resilience within consumer-facing services helped support the quarterly expansion, offering evidence that domestic activity continues to withstand restrictive borrowing conditions.
For the Bank of England, the figures provide further evidence that the economy remains resilient enough to allow policymakers to retain a cautious, data-dependent approach towards monetary easing without an immediate threat of recession.
The economic backdrop also provided support for domestically exposed lenders and industrial companies within the FTSE 100.
Oil Retreats but Remains Above $80
Crude prices eased from recent multi-week highs on Thursday, although oil remained above $80 a barrel as geopolitical uncertainty continued to support the market.
Investors remain focused on tensions between Washington and Tehran surrounding shipping access through the Strait of Hormuz.
Despite continuing diplomatic efforts, the United States and Iran remain divided over the conditions required for a permanent peace agreement. As a result, geopolitical risk continues to be reflected in global energy prices and freight costs.
European Economic Data Comes Into Focus
Investors are also awaiting additional economic releases from Europe later in the session.
Spain’s final July inflation figures and Eurozone industrial production data are due, providing further indications of whether disinflation and manufacturing activity are developing in line with European Central Bank expectations heading into the autumn.
The figures could influence expectations for the ECB’s next policy moves as officials balance easing inflation pressures against the health of the regional economy.
Pandora Rises While Thyssenkrupp Slips
Among individual stocks, Pandora (LSE:0FND) gained almost 3% after its second-quarter results exceeded expectations and the company raised its earnings outlook.
Thyssenkrupp (TG:TKA), meanwhile, fell 1.5% despite narrowing its 2026 guidance towards the upper end of its previous range.
European markets therefore remained supported by easing U.S. interest-rate concerns and resilient UK economic data, while geopolitical risks and upcoming European macroeconomic releases continued to shape the outlook.
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