European stocks rise as on-target U.S. CPI dampens Fed hike expectations

European stocks experienced a positive shift on Thursday, fueled by the U.S. Consumer Price Index (CPI) report, which met expectations and eased concerns of an imminent Federal Reserve rate hike. The Stoxx Europe 600 Index rose 0.2%, signaling a return to record highs. Gains were widespread, with Germany's DAX up 0.5% and France's CAC 40 increasing by 0.2%.

Meanwhile, London's FTSE 100 fell 0.3%, impacted by decreasing oil prices. Market participants were relieved by Wednesday's U.S. CPI report, which indicated a 0.1% month-over-month increase in headline CPI and a steady core inflation rate of 2.5% year-on-year. This data effectively countered the possibility of further near-term Fed rate hikes.

Following the data, money markets adjusted, reducing the probability of a 25-basis-point Fed rate increase at the September 16 meeting to approximately 40% – a significant decrease from nearly 67% just one week prior. This rate adjustment provided global equity investors with a more favorable outlook, diminishing recent worries about higher borrowing costs.

As highlighted by Sam Hill, head of market insights at Lloyd’s Bank, "The US July CPI number offered up nothing in the way of a surprise." The market is likely to view it as reaffirming the deceleration observed last month, providing the Fed with additional leeway and reducing the likelihood of a September hike. Across the Atlantic, the UK economy showcased strong performance in the second quarter, expanding by 0.4%, aligning with expectations.

The growth was driven by the resilience of service sectors, indicating that Britain's economic recovery is still in motion despite high interest rates. For the Bank of England, the consistent GDP print offers crucial evidence of fundamental strength, allowing policymakers to adopt a cautious, data-driven approach to monetary easing, without causing immediate concerns of recession.

The steady expansion also creates a supportive backdrop for FTSE 100 industrials and domestic lenders. Oil prices continued to lag, despite slipping from multi-week highs, and remained above $80 per barrel. Traders continue to monitor tensions between the U.S. and Iran regarding shipping access through the Strait of Hormuz, which could potentially impact energy markets and global freight costs due to ongoing geopolitical uncertainties.

Looking ahead, investors will now focus on upcoming European macroeconomic releases, including Spain's final July CPI figures and the Eurozone's industrial production report. These data points will help central banks evaluate whether regional disinflation and manufacturing momentum are in line with the European Central Bank's policy projections for the autumn.

Meanwhile, individual stocks have also contributed to market movement. Shares in Pandora rose nearly 3% following a beat on second-quarter estimates and an upward revision of its earnings outlook. Maersk increased by 4.6% after reporting better-than-expected profits and raising its full-year earnings guidance. Adyen surged 12.2% following the announcement of higher annual revenue growth forecasts.

Conversely, Thyssenkrupp fell by 1.5% despite narrowing its 2026 outlook upward, while Swissquote declined by 10% after missing first-half expectations.