A look at the day ahead in U.S. and global markets from Mike Dolan
Wall Street’s best day of the year so far was rooted in inflation relief and a boom in bank stocks reporting bumper earnings, with a retail readout up next on Thursday.
After Tuesday’s sub-forecast producer price data, the December consumer price index also surprised and the annual ‘core’ CPI inflation rate showed disinflation resuming.
With key price components on shelter and services better behaved, the 6-month annualised core CPI rate is now back below the Federal Reserve’s 2% target to its lowest in four years.
That news sparked a significant rally in troubled U.S. Treasuries and global sovereign bonds, with 10-year Treasury yield recoiling by a whopping 15 basis points on the day before steadying overnight about 4.66%. The chance of a second Fed interest rate cut this year, off the radar so far this year, was back priced at 50% in futures markets.
The dollar fell back with them, with the dollar/yen pair retreating to a new year low as speculation about another Bank of Japan interest rate rise next week builds.
The relief spread out across U.S. stock indexes too, with bumper fourth-quarter earnings from the big U.S. banks adding to the whoosh. Goldman Sachs, Citi and Wells Fargo all gained more than 6% on the day and the S&P 500 bank index, which has outperformed the wider market right through January, added another 3.4%.
And in the backdrop there was also some relief in the geopolitical picture with Wednesday’s announcement of a complex ceasefire accord between Israel and Hamas – although that did little to rein in crude oil hovering near 6-month highs in a tightening energy market.
With another sweep of bank reports due on Thursday, Wall Street futures have retained most of the prior day’s rally.
And for bond markets in particular, today delivers another stream of important economic soundings ahead of next week’s inauguration of Donald Trump for a second four-year presidential term.
The December retail sales report will give a glimpse of holiday season activity, but weekly jobless claims numbers will also be watched closely after last week’s latest “hot” payrolls report. The Philadelphia Fed’s January business sentiment survey is also out.
Wednesday’s release of the Fed’s Beige Book on prevailing economic conditions showed activity increased slightly in late November and December, with employment ticking up and prices rising moderately.
But a heavy slate of Fed speakers noted that while the latest inflation data was helpful, uncertainty was high about the coming months as they await policies from the incoming Trump administration.
