Global markets showed little movement on Wednesday as traders awaited key economic data from the US and earnings reports from major banks, both of which could influence market sentiment and expectations for future monetary policy, Reuters reports.
US equity futures were mostly flat during Asian trading hours, indicating a wait-and-see approach ahead of the release of US consumer price index (CPI) data. Meanwhile, European markets saw modest gains, with pan-European STOXX 50 futures rising by 0.1% and UK FTSE futures up by 0.2% in anticipation of the upcoming UK CPI report.
In Asia, the MSCI index of Asia-Pacific shares outside Japan eased by 0.2%, and Japan’s Nikkei swung between gains and losses, ultimately ending 0.3% lower. The focus in the region was primarily on currency movements, particularly the Japanese yen, which gained ground against the US dollar. The dollar dropped 0.4% to 157.3 yen as markets adjusted expectations, now seeing a 70% chance that the Bank of Japan will raise interest rates in January. This sentiment was fueled by comments from BOJ Governor Kazuo Ueda, who suggested the possibility of rate hikes in the near future. Japanese government bond yields also reached their highest levels since 2011, with the 10-year yield hitting 1.255%.
The major focus for markets, however, is the US CPI data, set to be released later on Wednesday. Forecasts suggest a modest 0.2% increase in the core CPI, but a stronger-than-expected print could lead to renewed selling in global stocks and bonds. Analysts at JPMorgan noted that a “dovish” CPI print could reignite market rallies, potentially boosted by strong corporate earnings. Conversely, a “hawkish” CPI reading could push the US 10-year Treasury yield towards 5%, resulting in higher volatility and continued pressure on equity markets.
Overnight, US producer price data for December showed a subdued pace of inflation, with the core measure remaining flat for the month. This news led to a pullback in the US dollar and a drop in short-term Treasury yields. The S&P 500 closed slightly higher, up by 0.1%. Despite the easing in some price pressures, futures still reflect expectations of a modest interest rate cut from the Federal Reserve later this year, with the first cut not fully priced in until September.
Investor attention is also focused on US fourth-quarter earnings, with reports from major banks, including Citi and JPMorgan, expected on Wednesday. Strong earnings from these banks are anticipated, driven by strong trading and dealmaking activity in the final quarter of 2024.
In the UK, attention is centered on the local CPI data, which is expected to show that headline inflation remained steady at 2.6% in December. The pound slipped slightly by 0.1% to $1.2198, hovering just above a one-year low. Concerns over the UK’s fiscal outlook have put pressure on government bonds, with yields hitting 16-year highs in recent weeks.
In commodities markets, oil prices experienced a slight rebound after dropping more than 1% on Tuesday. US crude rose 0.5% to $77.92 per barrel, and Brent crude increased by 0.4% to $80.21 per barrel.
As markets await these key economic and corporate reports, traders remain cautious, with global market sentiment dependent on the direction of inflation data and the outlook for US monetary policy.
