European shares open higher but caution persists ahead of US CPI

• Eurostoxx gained 0.1%.
• Germany's DAX climbed 0.2%.
• France's CAC 40 advanced 0.5%.
• The UK's FTSE added 0.9%.
• Spain's IBEX was up 0.5%.
• Italy's FTSE MIB rose 0.2%.

European trading has opened on a firmer footing, with modest increases seen across the major benchmarks at the start of the session. The wider move higher points to investors retaining a degree of risk appetite even as global markets have turned cautious over recent weeks.

Even so, the early gains should not be overinterpreted just yet, even though they are following on from the previous session.

With US Treasuries trading again today, they are set to offer a more significant test of wider risk appetite, particularly following the recent run-up in yields over the past few weeks. Ten-year yields are sitting near 5.19% for the moment, though it remains to be seen how Wall Street responds to the start of the new week when trading resumes later today. At this stage, market participants remain focused on the inflation picture and the possibility of additional Federal Reserve tightening.

Against that backdrop, the bigger focus will be the US CPI report due tomorrow. A reading that comes in hotter than expected could revive concerns over higher borrowing costs and exert fresh upward pressure on bond yields.

In addition, the Wall Street earnings season is set to kick off later, as the largest banks deliver their latest quarterly numbers. That is likely to give investors one more source of uncertainty to contend with this week.

For the moment, US futures are looking more cautious, with technology stocks still proving something of a drag at the start of the week. S&P 500 futures sit 0.1% lower and Nasdaq futures are off 0.7% during European morning trading. That adds to the cautious tone on Wall Street heading into tomorrow's inflation figures.

In Europe, sentiment has so far held up reasonably well. Yet whether the initial advances will prove durable may hinge more on the bond market than on any other factor.