European bonds, stocks, euro rally on softer U.S. CPI

Euro zone bond yields fell and European shares rallied on Wednesday, tracking moves in U.S. markets after lower-than-expected U.S. inflation print for July dampened expectations for a 75 basis-point Fed rate hike in September.

Germany's 10-year bond yield was down 8.5 bps on the day at 0.837%, having traded at around 0.92% prior to the data. Moves on U.S. Treasuries were even bigger with 10-year yields last down 11 bps at 2.69%%.

The dollar index, which tracks the greenback against six peers plunged 1.2% to 104.97, its lowest since early July, as the euro, pound and yen all gained over 1%.


Money markets reduced their bets on rate hikes from the European Central Bank (ECB) following the data, with 105 bps of hikes priced in by December versus 113 bps prior to the release. However, they still expect a 50 bps move in September.

European stocks, which were flat for most of the session, jumped immediately after the inflation figures, with the pan-European STOXX 600 rising 0.8% from 0.1% before the data.

The Consumer Price Index (CPI) was unchanged last month after advancing 1.3% in June, Economists polled by Reuters had forecast a 0.2% rise.

(Reporting by the London Markets Team)