Inflation data for May indicated weakening inflationary pressures in the United States, bolstering market expectations of a potential interest rate cut by the Federal Reserve (Fed) in September.

According to the London Stock Exchange Group (LSEG), global equity funds saw a significant net inflow in the week ending June 26, totaling $21.65 billion, marking the highest level since March 13.

Recent U.S. economic indicators have shown signs of weakness, including a drop in new home sales to a six-month low in May and a marginal 0.1% month-on-month increase in retail sales for the same period, reflecting waning consumer confidence and further reinforcing expectations of rate cuts.

The Personal Consumption Expenditures (PCE) price index for May revealed continued inflation moderation, with a flat month-on-month growth rate of 0% and the core PCE price index increasing by only 0.1% month-on-month, marking its lowest growth since November last year. These data points provide crucial insights for Fed monetary policy decisions, contributing to increased market risk appetite.

U.S. equity funds performed particularly well, recording a weekly inflow of $16.37 billion, marking a new high in a year. Concurrently, European and Asian equity funds continued to attract capital, receiving $3.28 billion and $1.36 billion respectively.

Benefiting from rate cut expectations, substantial funds flowed into bond funds. Global bond funds saw a net inflow of $5.24 billion last week, marking the 27th consecutive week of capital inflows. Among them, global government bond funds attracted $1.73 billion, while corporate bond and U.S. short-term bond funds received net inflows of $1.07 billion and $1.05 billion respectively.

As of June 26, the FedWatch tool from the Chicago Mercantile Exchange indicated a 61.1% probability that the Fed would lower interest rates by 25 basis points in September.