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A look at the day ahead in the US and global markets by Mike Dolan
Thanks in large part to stabilizing bond markets and a retreat from the super-strong dollar, global stocks took a rare New Year’s offering on Tuesday with critical inflation and corporate earnings updates in sight.
A somewhat strange narrative developed behind Monday’s stock bounce, with some citing a Bloomberg report that said President-elect Donald Trump’s team is considering gradual tariff hikes, using emergency legislation to increase import duties by 2% to 5% per month until they obtain trade concessions. partners
While there may have been some relief that larger one-off rate hikes aren’t coming as soon as next week, the prospect of months – or even years – of trickle-fed rate hikes and threats in series of these, it doesn’t seem. a recipe for easier trouble-free market navigation or inflation worries ahead.
However, the relentless sell-off in this year’s Treasuries has stalled for at least the past 24 hours, and a slightly more positive outlook has filtered through Wall Street stocks and the rest of the world overnight.
With December producer and consumer price reports due today and Wednesday respectively, benchmark 10-year Treasury yields have eased from 14-month highs above 4.8% reached on Monday and yields on 30-year “long bonds” are down to 5% for now.
Sentiment was helped on Monday by the release of the New York Fed’s December consumer survey, which painted a more mixed picture of public inflation expectations than a brighter reading from the University of Michigan last friday The latter had compounded the swoon in bond payrolls at the end of last week.
The New York Fed survey showed that the expected path of household inflation a year from now would remain steady at 3%. While the 3-year view rose to 3% from 2.6% in November, the 5-year view fell to 2.7% from 2.9%.
This saw Fed futures find their footing and the market has once again priced in an interest rate cut this year in October, compared to a scenario yesterday morning which showed no price at all for all of 2025. A stagnation in crude oil prices, which affected. Monday’s four-month highs on the latest US sanctions on Russia also calmed bond market horses somewhat.
However, annual US producer price and “core” readings due later Tuesday are expected to see a significant rebound to 3.4% and 3.8%, respectively.
More importantly, tomorrow’s consumer price report is expected to show that the annual “core” inflation rate was flat at 3.3% last month.
Market expectations for inflation embedded in inflation-protected Treasuries are now just a whisker away from 2.5% for the first time since October 2023. Meanwhile, the New York Fed’s estimate of the so-called “term premium” demanded by investors to hold 10-year Treasury bonds. , hit nearly 65 basis points on Monday for the first time since September 2014.
