European stocks closed broadly higher on Thursday as market risk appetite significantly improved. The pan-European Stoxx 600 Index edged up 0.2%, continuing to approach its all-time high, while Germany's DAX and France's CAC 40 both gained 0.3%. London's FTSE 100 outperformed, rising 0.6% bolstered by strong domestic economic data.
The core driver behind the European rally was the latest US inflation data. In July, the overall US Consumer Price Index rose by just 0.1% month-over-month, and core inflation remained steady at 2.5% year-over-year, with all indicators meeting market expectations. This stable inflation performance, coupled with the previously weak nonfarm payrolls report, effectively alleviated investors' concerns about the Federal Reserve continuing to tighten monetary policy. Money markets quickly repriced accordingly; traders now estimate the probability of a 25-basis-point rate hike at the Fed's September meeting has dropped to around 40%, down significantly from nearly 67% a week ago. Market participants note that the trend of easing inflation provides the Fed with more policy breathing room, greatly reducing the necessity for a September rate hike.
Positive economic signals also emerged from the UK. The country's second-quarter gross domestic product grew by 0.4% quarter-over-quarter, in line with market expectations. This growth was primarily driven by the expansion of consumer-facing services, indicating that the UK economy remains resilient despite persistently high interest rates. Robust macroeconomic fundamentals not only supported industrial and domestic bank stocks in the FTSE 100 but also allowed the Bank of England to maintain a cautious, data-dependent stance in setting monetary policy, avoiding fears of an immediate recession.
In the energy market, crude oil prices pulled back slightly from recent highs but remained firm above $80 a barrel. This is largely attributed to the lack of substantive breakthroughs in diplomatic negotiations between the US and Iran over the Strait of Hormuz. Disagreements over the terms of a peace deal have kept the geopolitical risk premium alive, deeply embedded in global energy and shipping costs.
As the trading day progressed, investors' attention shifted to upcoming macroeconomic data, including Spain's final consumer price index and eurozone industrial production. On the individual stock front, jewelry maker Pandora saw its shares jump nearly 3% intraday, driven by better-than-expected second-quarter earnings and upgraded full-year profit guidance.
