European shares opened higher on Thursday, buoyed by an overnight rally on Wall Street as traders awaited an expected rate hike from the Bank of England.
Europe’s Stoxx 600 rose 0.6%, recovering from a two-day losing streak, while France’s Cac gained 0.9%.
Indexes followed New York stocks higher after U.S. inflation data came in slightly weaker than expected, boosting traders’ belief that the Federal Reserve may soon halt its rate-tightening campaign.
The tech-heavy Nasdaq Composite rose 1% on Wednesday to close at its highest level since June. Lower interest rates increase the attractiveness of companies that promise long-term growth. The S&P 500 closed up 0.5 percent.
Contracts tracking the S&P 500 and the tech-heavy Nasdaq both rose 0.3% ahead of the New York open on Thursday.
In the UK, the Bank of England is expected to raise interest rates for the 12th time in a row. With UK inflation still above 10% in March, markets are almost certain to price in a 0.25 percentage point rise, which would take the benchmark rate to 4.5%. Traders expect rates to peak at 4.75% in September.
London’s FTSE 100 rose 0.5%.
“The drivers of higher-than-expected inflation are largely some surprising stickiness in food prices and core commodity inflation: neither trend looks likely to last,” said Francesco Pesole, FX strategist at ING.
Annual consumer price growth in the UK held at double digits at 10.1% in March, the latest month for which data is available.
Meanwhile, uncertainty over the U.S. debt ceiling continued to cloud markets after U.S. Treasury Secretary Janet Yellen warned earlier this month that the government could run out of money as soon as June 1.
Former U.S. President Donald Trump on Wednesday urged Republican lawmakers to allow the U.S. to default on its debt unless Democrats give in to demands for “massive” spending cuts. The rate-sensitive two-year yield rose 0.02 percentage point to 3.91%, while the 10-year yield was flat at 3.42%.
Asian stocks struggled for direction after weak inflation data from China pointed to softening demand, but traders hoped similarly weak U.S. data would support equity valuations. Chinese consumer price inflation slowed to its lowest level in two years.
Hong Kong’s Hang Seng fell 0.2%, while Japan’s Topix lost 0.3%. China’s CSI 300 rose 0.1 percent and South Korea’s Kospi rose 0.4 percent.
Additional reporting by William Langley in Hong Kong