European stocks tick higher after positive US inflation data

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European stocks edged higher on Thursday following gains in Asian markets, after a sharper than expected drop in US inflation triggered a dollar sell-off and pushed Wall Street stocks to their highest level in more than a year.

Europe’s region-wide Stoxx 600 added 0.3 per cent in early trading, having climbed 1.5 per cent — the most since early June — in the previous session. France’s Cac 40 added 0.1 per cent, while Germany’s Dax and London’s FTSE 100 were steady.

Those moves came after the annual increase in the US consumer price index slowed from 4 per cent in May to 3 per cent in June, the slowest rate of inflation since March 2021.

Core inflation also fell more than expected, and the figures are likely to ease pressure on the Federal Reserve to keep raising interest rates after it meets at the end of this month, when analysts still expect a quarter percentage-point increase in the central bank’s benchmark rate.

However, the market-implied probability of an additional rate rise in the autumn fell to about one in three from one in two before the CPI release.

“We, and increasingly the market, doubt that the Fed will hike again after the July 26 meeting,” said Steve Englander, head of G10 FX research at Standard Chartered, adding that the latest inflation numbers may prove a “game changer” for the dollar. On Wednesday, the US dollar index, which measures the currency against a basket of six others, hit its weakest point in 15 months.

Preston Caldwell, chief US economist at Morningstar, said inflation was now showing “broad based signs of deceleration”, supporting his view that the Fed would begin “aggressive” rate cutting next year.

Wall Street’s benchmark S&P 500 rose to its highest level in 15 months following June’s consumer price figures, with big tech companies leading the charge. Contracts tracking the index rose 0.3 per cent on Thursday ahead of the New York open, while contracts tracking the tech-heavy Nasdaq 100 rose 0.5 per cent.

Asian markets rose even as China’s exports and imports both shrank faster than expected in June. China’s CSI 300 gained 1.4 per cent, South Korea’s Kospi added 0.6 per cent, while Japan’s Topix rose 1 per cent.

Hong Kong’s Hang Seng index added 2.6 per cent while the Hang Seng Tech index rallied 3.6 per cent after government officials signalled their support for the tech sector.