European stocks rally after US inflation data

European shares rose on Wednesday, in a sharp reversal from earlier in the session, after a lower-than-expected reading of US inflation last month provided some relief to investors.

The pan-European STOXX 600 index closed up 0.89% at 439.88 points, its best session in nearly two weeks.

US consumer prices were unchanged in July due to a sharp drop in the cost of gasoline.

“If the US consumer is feeling more optimistic and has more money in their pocket because inflation at home is not so complicated, then potentially they will be able to spend more in Europe and the UK and also on the multinational companies that export so much to the US ,” said Danni Hewson, financial analyst at AJ Bell.

But analysts also noted that while lower energy prices have helped to reduce US inflation, supply and demand risks paint a bleak picture for Europe.

“Unfortunately, the difficulties of getting energy from non-Russian sources means we could see European gas prices soar as demand picks up later in the year,” said Joshua Mahony, senior markets analyst at online trading platform IG.

The STOXX 600 has been struggling this month on concerns about poor economic data, rising geopolitical tensions and fears that higher rates could tip the economy into a recession.

• In London, the Financial Times index advanced 0.25%, to 7,507.11 points;
• In Frankfurt, the DAX index rose 1.23% to 13,700.93 points;
• In Paris, the CAC-40 index gained 0.52% to 6,523.44 points;
• In Milan, the Ftse/Mib index appreciated by 0.95%, at 22,702.44 points;
• In Madrid, the Ibex-35 index registered an increase of 0.49%, to 8,352.80 points;
• In Lisbon, the PSI20 index depreciated by 0.50%, to 6,210.24 points.