European shares opened higher on Tuesday, driven by the S&P 500 closing at its highest close in more than a year, as traders awaited the release of U.S. inflation data and the Federal Reserve’s interest rate decision.
Europe’s Stoxx 600 opened 0.5 percent higher, France’s Cac 40 rose 0.6 percent and Germany’s Dax rose 0.7 percent.
Investors took their cue from Wall Street’s rebound after the benchmark S&P 500 rose 0.9% in previous sessions to its highest point since last April. The tech-heavy Nasdaq Composite rose 1.5% to its highest level in 14 months.
Traders were preparing for the release of the latest U.S. consumer price index report, which is expected to show headline inflation slowed to 4.1 percent in May from a year earlier, according to economists polled by Reuters.
The figure would be down sharply from 4.9% in April and 5% in March, suggesting that the Fed’s tightening actions are kicking in, giving policymakers a pause.
Most investors are betting the Fed will hold off on raising rates when it meets on Tuesday and Wednesday, marking the first pause in the central bank’s 14-month campaign to reduce inflation.
“The general consensus is that inflation is moving lower, the economy is slowing but not contracting, and the Fed will cool off and reassess in July,” said Mike Zigmont, head of research and trading at Harvest Volatility.
U.S. futures rose, with contracts tracking the S&P 500 up 0.3%, while contracts tracking the Nasdaq 100 rose 0.6% ahead of the New York open.
The US two-year yield, which is more sensitive to monetary policy expectations, fell 0.04 percentage point to 4.55%, while the 10-year yield fell 0.04 percentage point to 3.73%. Bond yields fall as prices rise.
The dollar was down 0.3 percent against a basket of six peers, in volatility when investors expect higher interest rates.
In Europe, investors awaited the release of the ZEW institute’s latest index of German economic sentiment, which is expected to fall to minus 13.1 in June, down from minus 10.7 in the previous month, suggesting that high borrowing costs are weighing on the euro zone’s largest economy.
Still, economists believe the ECB will raise the deposit rate by another 25 percentage points when policymakers meet on Thursday.
Asian shares rose on Tuesday, with Chinese stocks higher after the People’s Bank of China cut its seven-day reverse repurchase rate by 0.1 percentage point to boost short-term liquidity.
Hong Kong’s Hang Seng rose 0.7 percent and China’s CSI 300 rose 0.5 percent. Japan’s Topix gained 1.2%, while South Korea’s Kospi gained 0.5%.