European markets opened on a positive footing Tuesday, riding a wave of global optimism after the United States stepped back from the brink of a trade war escalation with China.
The continent-wide rally provided a moment of calm, but investors remain on high alert as they pivot their focus to a crucial inflation test from the US that could dictate the next major market move.
With trading now underway, London’s FTSE 100 has climbed 0.3%, with the mid-cap FTSE 250 rising 0.4%, both mirroring gains across the continent.
Futures data from IG had already set the stage for a positive session, forecasting gains for France’s CAC 40 (+0.3%), Germany’s DAX (+0.25%), and Italy’s FTSE MIB (+0.27%).
This follows a mixed Monday session and an overnight rally in Asia-Pacific markets, all digesting President Donald Trump’s decision to delay higher tariffs on Chinese goods for another 90 days. In currency markets, the pound strengthened slightly against the dollar to trade above $1.34.
A sterling picture with a retail wrinkle
The positive sentiment in London was bolstered by the release of better-than-expected UK jobs data just as the market opened. However, a shadow looms over the UK’s domestic economy.
A new report from the Association of International Retail revealed that American visitors spent less in the country last year than they did in 2019.
The group attributes the decline directly to the government’s 2021 decision to end tax-free shopping for international visitors, arguing that tourists now simply wait to make major purchases until they reach mainland Europe.
The association continues to advocate for the return of VAT-free shopping, claiming it could provide a significant boost to the British economy at a critical time.
The inflation test awaits
While the trade truce provides a temporary tailwind, the market’s next direction hinges on data from across the Atlantic.
Investors are holding their breath for the latest US consumer price index (CPI) report, hoping it will offer insight into the Federal Reserve’s thinking on interest rates ahead of its key September meeting.
With the S&P 500 hovering near an all-time high, the stakes are incredibly high.
Economists polled by Dow Jones expect the headline CPI to show a 0.2% advance for July, and 2.8% on an annualized basis.
More importantly, the so-called core CPI, which strips out volatile food and energy costs, is forecast to climb 0.3% month-over-month and 3.1% year-over-year.
Any deviation from these figures could send shockwaves through global markets, potentially derailing the fragile sense of optimism that has defined the week’s opening.
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