A have a look at the day ahead in U.S. and global markets from Mike Dolan
Thanks largely to a stabilisation of bond markets and an ebbing of the super-strong dollar, global stocks caught a rare latest yr bid on Tuesday with critical inflation and company earnings updates now in view.
A rather bizarre narrative developed behind Monday’s bounce in stocks, with some citing a Bloomberg report claiming President-elect Donald Trump’s team is studying gradual tariff hikes – using emergency laws to spice up import duties 2%-5% per thirty days until they wreak concessions from trade partners.
While it can have sown some relief that larger one-off tariff rises usually are not coming as soon as next week, the prospect of months – and even years – of drip-fed tariff hikes, and serial threats of such, doesn’t sound like a recipe for smooth market sailing or easier inflation concerns ahead.
Nevertheless, this yr’s relentless selloff in Treasuries has paused at the least over the past 24 hours and a rather more positive posture there filtered through Wall Street stocks and out internationally overnight.
With December producer and consumer price reports due out today and Wednesday, respectively, 10-year benchmark Treasury yields have dialled back from 14-month highs above 4.8% hit on Monday and 30-year ‘long bond’ yields are balking at 5% for now.
Helping the mood on Monday was the discharge of the Recent York Fed’s December consumer survey, which painted a more mixed picture of public inflation expectations than a sparkier University of Michigan readout last Friday. The latter had aggravated bonds’ post-payrolls swoon late last week.
The NY Fed poll showed households’ expected path of inflation a yr from now remained regular at 3%. While the 3-year view rose to three% from 2.6% in November, the 5-year view ebbed to 2.7% from 2.9%.
This saw Fed futures find their feet and the market is back pricing one rate of interest cut this yr – by October – in comparison with a scenario early yesterday morning that showed none fully priced for the entire of 2025. A stalling of crude oil prices, which hit four-month highs on Monday on the newest U.S. sanctions on Russia, also calmed the bond market horses a bit.
Nonetheless, annual headline and ‘core’ U.S. producer price inflation readings due afterward Tuesday are expected to see a big pickup up in 3.4% and three.8% respectively.
And more importantly, tomorrow’s consumer price report is anticipated to point out the ‘core’ annual inflation rate stuck as high as 3.3% last month.
Market inflation expectations embedded in Treasury inflation-protected securities are actually only a whisker from 2.5% for the primary time since October 2023. The NY Fed’s estimate of the so-called ‘term premium’ demanded by investors to carry 10-year Treasuries, meantime, hit almost 65 basis points on Monday for the primary time since September 2014.