Stocks, Bonds Gain as Slower UK Inflation Soothes: Markets Wrap

By Pune Media On Jan 15, 2025 9

(Bloomberg) — European stocks edged higher and bond yields slipped, as an unexpected slowdown in UK inflation followed a benign wholesale price reading in the US, encouraging hopes that price pressures could be starting to recede.

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British consumer prices rose 2.5% from a year earlier in December, better than the 2.6% reading forecast by economists. Europe’s Stoxx 600 equity gauge rose 0.4%, while London’s FTSE 250 index climbed 1.5% as the inflation figures kept alive hopes of a Bank of England interest-rate cut next month.

The print also sent the pound lower, while 10-year gilt yields slid nine basis points, bringing relief to a market that’s borne the brunt of the recent bond selloff.

While US consumer inflation data due later in the day is keeping traders wary of making big bets, Treasury 10-year yields edged lower and Bloomberg’s dollar gauge extended Tuesday’s 0.4% drop. Contracts on the Nasdaq 100 rose 0.2%.

Wednesday’s US consumer price report comes at a crucial time for world markets pressured by a pullback in expectations of rate-cuts from the Federal Reserve and other central banks. While Tuesday’s producer inflation was lower-than-expected, forecasters expect CPI to show a fifth month of increases, with so-called core CPI up 0.3% in December.

“We need to see a more welcome print on the inflation front today,” said Laura Cooper, global investment strategist at Nuveen. “Today’s print will be crucial for the near-term price action as it could trigger another leg in the rate selloff, if we see a hotter-than-expected print.”

Equity traders are braced for a volatile day, with options implying moves of 1% in either direction for the S&P 500. Market jitters also center around Treasuries, with 10-year yields approaching the psychologically key 5% level and 30-year rates hitting new highs above 5% on Tuesday.

A yield at 5% “poses a risk to the continuation of the stock market rally,” said Vincent Juvyns, global market strategist at JPMorgan Asset Management. “It’s clear that at that level it becomes a serious competitor in terms of performance to the stock market.”

Equity investors are also focusing on the US corporate earnings season, which kicks off in earnest on Wednesday with some of the world’s biggest banks, including Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc.

The reports should offer clues about the strength of the US economy, with lenders likely to be quizzed about the impact of fewer-than-expected Fed rate cuts.

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Earlier, shares in Taiwan Semiconductor Manufacturing Co. dropped more than 2% after a report that the US will unveil more regulations to keep advanced chips from flowing to China. In currency markets, the yen strengthened against the dollar, as Bank of Japan Governor Kazuo Ueda hinted at a possible rate hike at the next policy meeting.

Key events this week:

Citigroup, JPMorgan, Goldman Sachs, BNY, Wells Fargo and BlackRock earnings, Wednesday
US CPI, Empire manufacturing, Wednesday
Fed’s John Williams, Tom Barkin, Austan Goolsbee and Neel Kashkari speak, Wednesday
TSMC earnings, Thursday
ECB releases account of December policy meeting, Thursday
Bank of America, Morgan Stanley earnings, Thursday
US initial jobless claims, retail sales, import prices, Thursday
China GDP, property prices, retail sales, industrial production, Friday
Eurozone CPI, Friday
US housing starts, industrial production, Friday

Some of the main moves in markets:

Stocks

The Stoxx Europe 600 rose 0.4% as of 10:16 a.m. London time
S&P 500 futures were little changed
Nasdaq 100 futures rose 0.1%
Futures on the Dow Jones Industrial Average were little changed
The MSCI Asia Pacific Index rose 0.3%
The MSCI Emerging Markets Index was little changed

Currencies

The Bloomberg Dollar Spot Index fell 0.2%
The euro was little changed at $1.0307
The Japanese yen rose 0.7% to 156.86 per dollar
The offshore yuan was little changed at 7.3459 per dollar
The British pound was little changed at $1.2223

Cryptocurrencies

Bitcoin rose 0.4% to $96,820.73
Ether fell 0.2% to $3,207.65

Bonds

The yield on 10-year Treasuries declined two basis points to 4.77%
Germany’s 10-year yield declined two basis points to 2.63%
Britain’s 10-year yield declined eight basis points to 4.81%

Commodities

Brent crude rose 0.3% to $80.19 a barrel
Spot gold rose 0.3% to $2,686.17 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Sujata Rao and Winnie Hsu.