European shares rose after the S&P closed at its highest in more than a year

European shares rose on Tuesday, driven by the S&P’s highest close in more than a year, as traders prepared for the release of US inflation data and the Federal Reserve’s decision on interest rates.

Europe’s region-wide Stoxx 600 climbed 0.2 percent, while France’s Cac 40 rose 0.4 percent and Germany’s Dax 0.3 percent.

Investors took their cues from a rally on Wall Street after the benchmark S&P 500 rose 0.9 percent in the previous session, hitting its highest point since last April. The tech-heavy Nasdaq Composite added 1.5 percent to its highest level in 14 months.

The latest US consumer price index report, which is due later on Tuesday, is expected to show that headline inflation slowed to 4.1 percent year-on-year in May, according to economists polled by Reuters.

The figure would mark a sharp decline from 4.9 percent in April, after 5 percent in March, a sign that the Fed’s tightening campaign is beginning to take effect, providing policymakers with an opportunity to pause.

Most investors are betting that the Fed will resist raising interest rates when they meet on Tuesday and Wednesday, the first pause in the central bank’s 14-month campaign to reduce inflation.

“The consensus view is that inflation is on a downtrend, the economy is slowing but not contracting, and the Fed will be calm and reassuring in July,” said Mike Zigmont, head of research and trading at Harvest Volatility.

US futures were up 0.3 percent in contracts tracking the S&P 500, while those tracking the Nasdaq 100 added 0.6 percent ahead of the New York open.

The yield on US Treasuries, which is more sensitive to monetary policy expectations, fell 0.02 percentage points to 4.57 percent, while the yield on the 10-year note fell 0.03 percentage points to 3.73 percent. Bond yields fall when prices rise.

The dollar, which strengthens when investors expect higher rates, fell 0.4 percent against a basket of six peer currencies.

Traders also took heart after the ZEW Institute’s economic sentiment index for Germany came in at minus 8.5 for June, an improvement from last month’s minus 10.7 and above the consensus forecast of minus 13.1.

Economists are still confident that the European Central Bank will raise its deposit rate by another quarter-percentage point when policymakers meet on Thursday.

In the UK, strong wages data pushed short-term gilt yields above levels reached during the turmoil following Liz Truss’ “mini” budget last autumn, raising the prospect that the Bank of England will raise rates further.

“All signs suggest that inflationary pressures have failed to ease, and may be rebuilding against BOE expectations,” said Nick Rees, FX market analyst at Monex Europe, (labor market) data via Threadneedle Street. Will send shockwaves.”

The yield on two-year gilts rose 0.18 per cent to 4.81 per cent, compared to a peak of 4.64 per cent at the end of September.

Asian shares edged higher on Tuesday as Chinese stocks edged higher after the People’s Bank of China lowered its seven-day reverse repurchase rate by 0.1 percentage point in an effort to boost short-term liquidity.

Hong Kong’s Hang Seng index was up 0.6 percent and China’s CSI 300 was higher 0.5 percent. Japan’s Topix rose 1.2 percent and South Korea’s Kospi rose 0.3 percent.