A look at the coming day in US and global markets by Mike Dolan
Thanks largely to stabilizing bond markets and a weakening super-strong dollar, global stocks caught a rare New Year’s bid on Tuesday with critical inflation and corporate earnings updates now in sight.
A slightly strange narrative developed behind Monday’s stock rally, with some citing a Bloomberg report claiming that President-elect Donald Trump’s team is studying gradual tariff increases, using emergency legislation to raise import tariffs between a 2% and 5% per month until they obtain commercial concessions. partners.
While there may have been some relief that one-off tariff increases will not occur as soon as next week, the prospect of months – or even years – of gradual tariff increases, and serial threats of such, does not look good. a recipe for smooth market sailing or easing inflation concerns going forward.
However, this year’s relentless selloff in Treasuries has paused for at least the past 24 hours and a slightly more positive stance filtered through stocks on Wall Street and around the world overnight. tomorrow.
With December producer and consumer price reports due today and Wednesday, respectively, benchmark 10-year Treasury yields have retreated from 14-month highs above 4.8% hit on Monday and 30-year ‘long bond’ yields hold out at 5% for now.
Adding to the mood on Monday was the release of the New York Federal Reserve’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 aggravated the fall in bonds after the collapse in payrolls at the end of last week.
The New York Federal Reserve survey showed that the expected trajectory of household inflation a year from now remained stable at 3%. While the 3-year outlook increased to 3% from 2.6% in November, the 5-year view decreased to 2.7% from 2.9%.
This caused Federal Reserve futures to regain their footing and the market again priced in an interest rate cut this year – in October – compared to a scenario yesterday morning that showed neither was fully priced in for everything. the year 2025. A stagnation in crude oil prices, which affected The four-month highs reached on Monday by the latest US sanctions on Russia also calmed the bond market horses a bit.
However, the annual US headline and “core” producer price inflation readings due out later on Tuesday are expected to see a significant rebound of 3.4% and 3.8% respectively.
More importantly, tomorrow’s consumer price report is expected to show that the “core” annual inflation rate stagnated at 3.3% last month.
Market inflation expectations embedded in Treasury inflation-protected securities are now just a step away from 2.5% for the first time since October 2023. Meanwhile, the New York Fed’s estimate of the so-called The “term premium,” demanded by investors to hold 10-year Treasury bonds, reached nearly 65 basis points on Monday for the first time since September 2014.