European stocks rallied on Thursday morning after German inflation came in lower than expected.

The benchmark Stoxx 600 rose 0.8 per cent and Germany’s Dax climbed 1.3 per cent. Inflation in the eurozone’s largest economy in January showed a 9.2 per cent rise year on year, which was below economists’ expectations.

The French Cac 40 index gained 1 per cent while the euro was up 0.4 per cent against the dollar.

The yields on 10-year Bunds fell 0.05 per cent to 2.31 per cent, while those on two-year contracts eased 0.04 per cent to 2.68 per cent.

Market watchers said investors had become somewhat reassured about the pace of the European Central Bank’s rate rises.

“Some of the fear that they’ll have to push rates up a long way has come out of the market,” said Neil Shearing, group chief economist at Capital Economics.

The FTSE 100 rose 0.5 per cent in early trade, while sterling gained 0.4 per cent against the dollar.

US futures were up, with contracts tracking the blue-chip S&P 500 gaining 0.4 per cent and those following the Nasdaq rising 0.5 per cent. The tech-heavy Nasdaq lost 1.7 per cent on Wednesday, after Google parent Alphabet disappointed investors following a glitch on its new artificial intelligence software, causing its stock to plummet 7.4 per cent.

“This is a reminder that markets are running ahead of reality in terms of pricing and potential for AI. What’s priced in is way ahead of what it’s able to deliver so some correction is due on the technology side,” said Charu Chanana, market strategist at Saxo.

The dollar index, which measures the greenback against a basket of six peers, also lost ground, falling 0.15 per cent. The yield on US 10-year Treasuries lost 0.02 per cent, at 3.61 per cent, while the yield on two-year notes fell 0.02 per cent to 4.44 per cent.

The moves followed hawkish comments from US Federal Reserve chair Jay Powell and four other officials at the central bank on separate events. Investors have turned cautious over the looming threat of continued interest rate rises in the US, having priced in cuts at the end of the year.

Brent crude saw relatively modest gains, at 0.13 per cent to $85.19 a barrel, while its US counterpart, WTI, increased 0.02 per cent to $78.49 to a barrel.

Hong Kong’s Hang Seng index climbed 1.4 per cent and the Chinese CSI 300 rose 1.3 per cent.

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