Cautious Optimism Returns Ahead of US Inflation Data

Global markets started the week with cautious optimism as investors balanced a mild equity rebound against a fragile macro backdrop. The coming U.S. inflation release remains the key catalyst, with traders searching for clarity on how far the Federal Reserve is willing to cut rates in an economy still showing uneven resilience.

U.S. equity futures gained modestly, with the S&P 500 up 0.53%, the Dow Jones Industrial Average higher by 0.52%, and the Nasdaq also advancing 0.52%. The move reflected a tentative recovery in risk appetite after last week’s pullback, even as sentiment stayed fragile ahead of the Consumer Price Index data. European equities joined the rebound: Germany’s DAX rose 1%, the FTSE 100 added 0.3%, and France’s CAC 40 gained 0.6%, helped by corporate news as Kering surged after selling its beauty business to L’Oréal for roughly $4 billion. The deal signaled an ongoing rotation into consumer luxury stocks, a segment that had lagged since midyear.

In Asia, optimism was firmer. Japan’s Nikkei climbed 3.4% after Sanae Takaichi’s election as the next prime minister eased political uncertainty and lifted investor sentiment. South Korea’s Kospi advanced 1.8%, its fourth straight gain, while Chinese markets recovered from recent weakness as investors bet on fresh policy support. ChiNext rose 2%, Shenzhen gained 1%, Shanghai added 0.6%, and Hong Kong’s Hang Seng Index advanced 2.5%. The rebound suggested traders were positioning for additional fiscal or monetary stimulus after GDP data showed China’s growth slowing to a one-year low.

The dollar found modest support after last week’s sell-off linked to regional bank concerns and aggressive rate-cut speculation. The DXY index rose 0.1% to 98.48, with the euro up 0.1% to $1.1666 and sterling flat near $1.3426. The dollar’s uptick came as Treasury yields inched higher, with the 10-year U.S. yield rising 1.3 basis points to 4.02%, reflecting a repricing of near-term policy expectations. In Europe, S&P Global’s unexpected downgrade of France’s sovereign rating pushed the 10-year OAT yield up 1.5 basis points to 3.38%, widening the OAT-Bund spread to 78.7 basis points and reinforcing concerns over fiscal credibility within the eurozone periphery.

Commodities painted a more defensive picture. Brent crude fell 0.8% to $60.78 per barrel and WTI declined 0.9% to $56.65, pressured by signs of oversupply and slowing demand growth. Gold, by contrast, benefited from safe-haven flows, climbing 0.9% to $4,251 per ounce as investors sought protection from potential volatility ahead of the inflation data. The interplay between oil’s weakness and gold’s strength underscored a market still hedging both growth and policy uncertainty.

Bitcoin rose 2.2% to $111,281 as a thaw in U.S.–China tensions briefly improved risk sentiment across digital assets. The move highlighted how macro detente can amplify speculative positioning, though crypto remains highly sensitive to shifts in global liquidity.

Looking ahead, the U.S. CPI print later this week will set the tone for risk assets. A softer inflation number could reinforce expectations for multiple Fed cuts before year-end, pushing yields and the dollar lower while supporting equities and gold. Conversely, a sticky inflation surprise could tighten financial conditions, steepen yield curves, and revive volatility in both equities and credit. The near-term focus will also fall on Fed speakers and the next FOMC meeting minutes for confirmation of the central bank’s tolerance for easing.

For investors, this is a time for balance rather than conviction. Equity markets are leaning toward a soft-landing narrative, while bonds and gold still price lingering macro stress. The base case favors continued range-bound trading until the inflation data reshapes rate-cut expectations. A decisive inflation undershoot could reopen the path for a Fed pivot, rewarding duration and high-beta equities. But if inflation surprises on the upside, defensive positioning in gold, cash, and quality credit could once again outperform.