European shares rise before US inflation data

The US consumer price index is expected to show annual inflation at 3.6% for September, helped by stronger energy prices, while core inflation is seen rising 0.2% on the month. A reading above forecasts would lift the dollar, pressure equities and likely keep borrowing costs high across asset classes, a particular concern for European stocks that have benefited from easing in long-dated US yields.

The 10-year Treasury yield was last at 5.221%, after touching its lowest level in almost two weeks, while the 30-year yield stood at 5.569% after three straight sessions of declines. Traders were pricing a 22% chance of a Fed rate hike in October ahead of the release, according to CME FedWatch, while New York Fed President John Williams said another increase could be needed this year to curb inflation.

Energy markets are adding to the caution. Oil prices remain supported by geopolitical tensions and attacks by Yemen’s Houthi movement on Saudi Arabia, reinforcing concerns about supply security and inflation persistence. That has kept the euro around $1.12 and left gold fractionally lower, while Italy’s bond spread over Germany held at 108 basis points with the 10-year BTP yield at 4.54%.

On the stock front, gains were led in Milan by Avio, which jumped 5.13% after announcing a cooperation agreement with Lockheed Martin on production at a new US plant. Brunello Cucinelli, Moncler and Prysmian also advanced, while Banca Mediolanum slipped 0.69%.

Investors now face a key test: if US inflation comes in hot, European equities could struggle to extend gains as markets reassess Fed policy, dollar strength and the durability of the recent bond rally.