European stocks build on overnight rally on Wall Street

European stocks rose at the open on Thursday, buoyed by an overnight rally on Wall Street, as traders awaited an expected interest rate rise from the Bank of England.

Europe’s region-wide Stoxx 600 gained 0.6 per cent, recovering from two consecutive days of losses, while France’s Cac index rose 0.9 per cent.

Indices were tracking gains in New York after US inflation data came in slightly weaker than expected, bolstering traders’ belief that the Federal Reserve may soon halt its rate-tightening campaign.

The tech-heavy Nasdaq Composite added 1 per cent on Wednesday to close at its highest level since June. Lower rates increase the appeal of companies that promise long-term growth. The S&P 500 finished 0.5 per cent higher.

Contracts tracking the S&P 500 and the tech-heavy Nasdaq both rose 0.3 per cent ahead of the New York open on Thursday.

In the UK, the Bank of England is expected to raise interest rates for the 12th consecutive time. UK inflation remained above 10 per cent in March and markets are pricing in a near-certain 0.25 percentage point rise, which would bring the benchmark rate to 4.5 per cent. Traders expect rates to peak at 4.75 per cent in September.

London’s FTSE 100 rose 0.5 per cent.

“The drivers of higher than projected inflation have primarily been food prices and some surprising stickiness in core goods inflation: neither of those trends look likely to be long-lasting,” said Francesco Pesole, FX strategist at ING.

Annual consumer price rises in the UK stayed in double digits, at 10.1 per cent in March, the latest month for which data is available.

Meanwhile, the US debt ceiling uncertainty continues to cast a shadow over markets, after US Treasury secretary Janet Yellen warned earlier this month that the government could run out of money as soon as June 1.

Former US president Donald Trump on Wednesday urged Republican lawmakers to let the US default on its debts, unless Democrats capitulate to demands for “massive” spending cuts. The yield on the interest rate-sensitive two-year Treasury rose 0.02 percentage points to 3.91 per cent, while the yield on the 10-year note was flat at 3.42 per cent.

Asian equities struggled for direction after weak inflation data in China pointed to weakening demand, but traders hoped the similarly soft US data would support stock market valuations. Chinese consumer price inflation slowed to its weakest level in two years.

Hong Kong’s Hang Seng index shed 0.2 per cent, while Japan’s Topix declined 0.3 per cent. China’s CSI 300 added 0.1 per cent and South Korea’s Kospi rose 0.4 per cent.

Additional reporting by William Langley in Hong Kong