


US equity futures are higher, led by small-caps with the rally strengthening after the cooler than expected UK CPI print. As of 8:20am, S&P and Nasdaq futures are up 0.4%, with banking shares advancing in premarket trading after markets inched out a positive close on Tues following firm underlying PPI components & yields continuing to march higher. BlackRock, Bank of New York Mellon, JPMorgan and Goldman Sachs all beat estimates for the fourth quarter, with trading revenues performing strongly. All Mag7 names are also higher. Otherwise, it's fairly quiet from a headline perspective overnight into CPI, although US reportedly will unveil more regulations to prevent advanced chips from being sold to China, with the planned rules, targeting producers TSMC, Samsung, and Intel. Bond yields are down 1-2bps as the USD is being offered, largely a function of yen strength following comment from BoJ Governor Ueda who said the BoJ will raise rates and adjust the degree of monetary support if improvement in the economy and price conditions continues, while he added that he wants to discuss and decide whether to raise rates at next week's policy meeting. In commodities, Energy and Metals are leading the complex higher. Today’s focus is on CPI/Bank Earnings but keep an eye on the Beige Book release.
In premarket trading, Mag 7 names were mostly higher: Alphabet (GOOGL) +0.6%, Amazon (AMZN) +0.5%, Apple (AAPL) +0.4%, Microsoft (MSFT) +0.2% , Meta Platforms (META) +0.7%, Nvidia (NVDA) +0.1%, and Tesla (TSLA) +0.6%. Here are some other notable premarket movers:
Traders remain wary of making big bets ahead of the "pivotal" CPI data (our full preview is here), which comes at a time when investors are paring their expectations of rate-cuts from the Federal Reserve. Forecasters predict CPI to show a fifth month of increases, with so-called core CPI up 0.3%. However, hopes of a benign print have been fanned by lower-than-expected US wholesale prices and slowing inflation in Britain.
“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 1.1% in either direction for the S&P 500, the most for a CPI day since March 2023. They are also watching to see if 10-year Treasury yields could move closer to the psychologically key 5% level. Treasury 10-year yields slipped about 3.5 basis points to trade around 4.76% and Bloomberg’s dollar gauge extended Tuesday’s 0.4% drop. Thirty-year rates also eased after hitting new highs above 5% in the previous session.
European markets are trading mostly higher (Stoxx 600 index rose 0.7% while London’s FTSE 350 rallied as much as 1.6%) looking to snap a three-day losing streak. Real estate, telecommunication and retail stocks are leading gains. S&P futures rise 0.1% while Nasdaq 100 contracts add 0.2%. Inflation reading from UK unexpectedly dipped to 2.5% versus 2.6% expected. Services inflation at 3-year low, with markets now discounting 50bps of BoE easing in 2025. Germany's economy shrank for the second consecutive year in 2024, with a 0.2% decline in GDP. Here are some of the biggest movers on Wednesday:
Earlier in the session, Asian stocks gained, as a rally in Indonesian shares after a surprise interest-rate cut helped to counter losses in Taiwan and mainland China. The MSCI Asia Pacific Index was up as much as 0.5%, with Japanese banks among the biggest boosts to the gains given expectations that the Bank of Japan will raise interest rates next week. The Jakarta Composite Index climbed 1.8%, the most in Asia, after Bank Indonesia defied market forecasts by cutting its key interest rate. Chinese equities were mixed, with a gauge of mainland-listed shares declining 0.6% while Hong Kong benchmarks ticked higher, as investors gauged local policymakers’ efforts to revive the economy amid the threat of higher US tariffs. The People’s Bank of China injected a near-historic amount of short-term funds into its financial system Wednesday amid a cash squeeze ahead of Lunar New Year holidays.
In rates, UK government bonds jump as traders add to their Bank of England interest-rate cut bets after data showed UK inflation eased more than expected in December. UK 10-year yields fall 8 bps to 4.81%. Treasuries also rise, albeit to a lesser extent with US and German 10-year borrowing costs dropping 2 bps each.
In FX, the pound reaction was choppy with cable printing fresh session highs and lows since the figures hit. It’s settled a few pips higher at ~$1.22. The yen is the notable mover in currency space, rising 0.7% against the greenback after comments from Bank of Japan Governor Ueda and his deputy his deputy strengthened market expectations for a potential interest-rate hike next week. USD/JPY falls to ~156.80. The Bloomberg Dollar Spot Index falls 0.2%.
Oil prices advance, with WTI rising 0.3% to $77.70 a barrel. Spot gold climbs $8 to $2,686/oz. Bitcoin rises above $97,000.
Looking to the day ahead now, and data releases include the US and UK CPI reports for December, along with Euro Area industrial production for November. From central banks, the Fed will release their Beige Book, and we’ll hear from the Fed’s Barkin, Kashkari, Williams and Goolsbee, ECB Vice President de Guindos and the ECB’s Villeroy and Vujcic, and the BoE’s Taylor. Today’s earnings releases include JPMorgan, Goldman Sachs, Citigroup and BlackRock.
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APAC stocks were choppy after a similar performance stateside where PPI data printed cooler-than-expected ahead of the incoming US CPI report. ASX 200 failed to sustain early gains with upside in consumer stocks, real estate and financials offset by losses in tech and miners. Nikkei 225 faded its opening advances with price action indecisive amid a lack of notable drivers and ongoing uncertainty regarding BoJ policy. Hang Seng and Shanghai Comp were softer as trade frictions lingered with the US finalising rules to effectively ban Chinese vehicles and it also banned imports for over 30 entities over Uyghur forced labour, while China placed 7 US firms on the unreliable entity list for involvement in arms sales to Taiwan. Nonetheless, some of the downside was stemmed following the PBoC's firm liquidity effort in which it conducted a CNY 960bln 7-day reverse repo operation.
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Geopolitics: Middle East
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DB's Jim Reid concludes the overnight wrap
Welcome to a big US CPI day with the added sprinkle of UK CPI (out just after this hits the press) and the start of US Q4 earnings season to contend with. A selection of large US financials, including JPM, Goldman Sachs, Citigroup and Blackrock report.
We arrive at this big day with markets a little trepidatious. After signs of a rebound in equities on Monday and global bonds into the Asian and early European session yesterday, the rest of the day was a little over all the place. Similarly to Monday, the S&P 500 (+0.11%) climbed from earlier losses with a broad number of advancers narrowly outweighing tech weakness. Meanwhile bond yields mostly edged higher to, in many cases, fresh multi-month or multi-year highs. For instance, the 10yr Treasury yield (+1.3bps to 4.79%) closed at its highest since October 2023, whilst the 30yr real yield (+1.8bps) hit another post-2008 high of 2.61%. 30yr gilts (5.45%) hit another 27-year high. To be fair it wasn’t all bad news, and a downside surprise in the US PPI reading made a change from the consistently hawkish newsflow over recent days. But even there, the details weren’t as positive on further inspection.
In terms of that PPI release, the main numbers all surprised on the downside, which triggered a reflexive move lower in Treasury yields straight afterwards. In particular, headline PPI inflation was running at a monthly pace of +0.2% (vs. +0.4% expected), which meant the year-on-year rate only rose to +3.3% (vs. +3.5% expected). Core PPI was also lower than expected, with the measure excluding food, energy and trade services up just +0.1% (vs. +0.3% expected). But as markets began to inspect the numbers in a bit more depth, it became clear that the components which feed into PCE (the Fed’s target measure) were more robust. One notable upside surprise came on airfares, which rose by a monthly +7.2% in December. So that limited the scale of the rally in Treasuries, as ultimately the Fed are looking for 2% inflation on the PCE measure, rather than CPI or PPI.
In terms of what to expect today, our US economists are projecting headline CPI to come in at a monthly +0.40%, thanks to strong seasonally adjusted gains in food and energy prices. If realised, that would be the fastest pace in 10 months, and push up the year-on-year rate by two-tenths to 2.9%. However, they see core falling to +0.23%, the slowest pace in five months, which would keep the year-on-year rate steady at 3.3%.
With the PPI release in hand, and even with the long-end sell-off, there was a bit more confidence, or maybe hope, that the Fed would still manage to cut rates this year. So that meant the 2yr Treasury yield (-1.3bps) pared back its initial increase yesterday to close at 4.37%. But other than front-end US Treasury yields, the overwhelming trend was still towards higher borrowing costs in both the US and Europe yesterday.
For once, the UK saw a comparatively smaller increase, with the 10yr gilt yield only up +0.5bps to 4.89%. But even so, that was still the highest 10yr yield since 2008, whilst the 30yr gilt yield (+1.2bps) hit a post-1998 high of 5.45%. That means all eyes are now on the UK CPI report this morning. Meanwhile in Germany, 10yr bund yields (+3.8bps) moved up for a 9th consecutive session, and reached their highest level since June at 2.65%.
In France, there were some fresh announcements on the budget as Prime Minister François Bayrou spoke to the National Assembly. Specifically, Bayrou said that he would aim for a 2025 deficit at 5.4% of GDP, which is a bit higher than Barnier’s budget which had sought to bring down the deficit to 5% of GDP this year. However, Bayrou is still planning to keep the target of reducing the deficit to 3% by 2029. When it came to French bonds, the rise in yields was in keeping with the global moves, with the 10yr yield (+1.3bps) at its highest since October 2023, at 3.47%.
When it came to equities, the S&P 500 (+0.11%) posted a narrow advance after an up-and-down session. The broader equity mood was more positive as the equal-weighted S&P 500 gained +0.78% with three quarters of the index’s constituents higher on the day. And the small-cap Russell 2000 advanced +1.13%. On the other hand, the Magnificent 7 (-1.02%) fell back for a 5th consecutive session. Weakness was also visible in healthcare stocks (-0.94%) after underwhelming Q4 results from pharma giant Eli Lilly (-6.59%). Meanwhile in Europe, the STOXX 600 (-0.08%) lost ground for a third consecutive session. This was also mostly driven by healthcare (-1.35%), while geographically UK equities underperformed, with the FTSE 100 falling -0.28%. By contrast, Germany’s DAX (+0.69%), France’s CAC 40 (+0.20%) and Italy’s FTSE MIB (+0.93%) all posted decent gains.
In geopolitical news, prospects for a ceasefire in Gaza look to be improving, with CBS reporting yesterday evening that Israel and Hamas had agreed in principle to a draft deal while Qatari officials mediating the talks said that a ceasefire was at its “closest point” yet. The headlines helped oil prices retreat from their near 5-month highs, with Brent crude down -1.35% to $79.92/bbl, and saw the broad dollar index (-0.62%) decline for the first time in six sessions.
Asian equity markets are generally a bit lower this morning. The Nikkei (-0.25%) has been swinging between gains and losses while the Shanghai Composite (-0.46%), S&P/ASX 200 (-0.22%) and KOSPI (-0.15%) are also lower. The Hang Seng is flat alongside S&P futures with NASDAQ futures up a tenth of a percent. 10yr US yields are rallying -1.8bps. Overnight reports suggest the Biden administration is planning one last round of regulations tightening up the flow of advanced chips to China which could be announced today.
In central bank news, the People’s Bank of China (PBOC) injected significant amount of funds into its financial system, marking the second highest on record in data compiled by Bloomberg since 2004. The central bank pumped a net +958.4 billion yuan ($131 billion) via 7-day reverse repurchase agreement during daily open market operations. This seemingly is aimed at offsetting facilities rolling off, peak tax season and cash demand ahead of the upcoming Lunar New Year holidays.
There wasn’t much in the way of other data yesterday, but the NFIB’s small business optimism index from the US was up to a 6-year high of 105.1 in December (vs. 102.1 expected).
To the day ahead now, and data releases include the US and UK CPI reports for December, along with Euro Area industrial production for November. From central banks, the Fed will release their Beige Book, and we’ll hear from the Fed’s Barkin, Kashkari, Williams and Goolsbee, ECB Vice President de Guindos and the ECB’s Villeroy and Vujcic, and the BoE’s Taylor. Today’s earnings releases include JPMorgan, Goldman Sachs, Citigroup and BlackRock.