Euro Stoxx gains 0.4% after July inflation

In July consumer prices were the same as in June, when they rose by a monthly 1.3 per cent. The July result was less than expected due to a drop in the cost of petrol, causing markets to reposition on hopes that inflation would peak.

When markets open, the risk-on sentiment is set to continue in Europe, with the pan-region Euro Stoxx 50 futures last up 0.4 per cent. The S&P 500 futures rose 0.2 per cent and the Nasdaq futures gained 0.3 per cent.

The Fed's commitment to fighting inflation has resulted in a huge problem for valuations in 2022, so any dovishness is seen as positive for the highest valued companies, according to Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson Investors.

The potential more dovish outlook undermined a key support for the U.S. dollar. The S&P 500 went up more than 2 per cent after the inflation report, while the Nasdaq Composite added 2.9 per cent. The June low has resulted in a 20 per cent gain for the Nasdaq.

The Federal Reserve may be able to temper the size of coming rate hikes because of the slowing of U.S. inflation. Traders are expecting a 50 basis point bps rate hike next month, compared to the 75 bps increase that was expected before the inflation report.

The July inflation report is a good step towards being able to claim victory over inflation, according to the July inflation report from the FOMC. However, at least one or two more similar readings for inflation are necessary if they are to have confidence that the inflation emergency has passed, said Elliot Clarke, senior economist at Westpac.

The policymakers left no doubt that they would continue to tighten monetary policy until price pressures were fully broken.

Inflation was still unacceptably high and that the Fed would need to raise rates during Wednesday's session, according to Chicago Fed President Charles Evans.

Minneapolis Federal Reserve Bank President Neel Kashkari said that while the inflation reading was welcome, the Fed was far away from declaring victory and needed to raise rates much higher.

In an interview with the Financial Times, San Francisco Fed President Mary Daly said it was too early for the U.S. central bank to declare victory in its fight against inflation and a half-percentage point rate rise in September was her baseline.

The US Treasurys, which had pulled back from an earlier plunge in yields as traders looked at the Fed's rate path, were not trading in Asia on Thursday due to a holiday in Japan.

The dollar was up 0.2 per cent against its major peers after plunging 1 per cent in the previous session, the most in five months. Commodity currencies rallied on improved risk appetite because of hopes of a soft landing.

Early in Asian trade, oil prices fell as traders shifted their attention back to more supply of crude entering the market, along with weaker demand. Brent crude futures fell by 0.4 per cent to $97.02 a barrel, while U.S. West Texas Intermediate crude futures fell by a similar margin to $91.52.

Spot gold fell by 0.4 per cent to $1,784. A one-month high was hit in the previous session, pulling away from a 74 per ounce.