A look at the day ahead in U.S. and global markets from Mike

Dolan

Wall St stocks have held up remarkably well in the face of the

renewed interest rate angst of the past week but Wednesday's

March inflation readout may now be make or break from here.

A late bounce for the S&P500 on Tuesday saw the index

close in positive territory and stock futures tick higher ahead

of the consumer price report later today.

For all the worries about the stubborn 'last mile' of the

disinflation process, consensus forecasts would suggest the

market calm is warranted for now. The core annual CPI rate is

expected to have ticked a tenth of a percentage point lower to

3.7% last month even if headline rates likely picked up steam.

The restive Treasury market has also steadied into the

critical release, despite a poor 3-year auction on Tuesday and

with $39 billion of 10-year notes going under the hammer later.

Crude oil's 3% retreat this week from Friday's 2024

high has helped somewhat.

The dollar too has frozen awaiting the inflation

readout, with the Bank of Canada deciding on interest rates

later today and the European Central Bank meeting on Thursday

too.

Canadian rates are expected to be kept on hold at 5.0% for

now, although money markets still price an 80% chance of a cut

in June - as they do for the ECB.

With Federal Reserve policy rate futures still wavering

about a U.S. cut that month, markets seem comfortable that the

ECB, Bank of Canada and even Bank of England will now jump the

Fed gun in starting the rate cut cycle.

New Zealand's central bank held its rate steady on Wednesday

as expected but it cautioned that it may need to remain

restrictive for a sustained period to drive inflation down to

its 1-3% target range and markets don't expect any easing there

until August.

What's more, some Fed hawks continue to suggest rates may

not be cut at all this year.

Atlanta Fed President Raphael Bostic said on Tuesday that

it's possible rates stay on hold through 2024 if progress on

inflation stalls and the economy continues to outperform.

"I can't take off the possibility that rate cuts may even

have to move further out," Bostic said in an interview with

Yahoo Finance.

Fed minutes of its March policy meeting are also released

later on Wednesday.

Inflation concerns apart, there were some signs of stress in

the U.S. corporate picture on Tuesday as the NFIB's small

business survey showed confidence ebbing to an 11-year low -

albeit with inflation still registering as the major concern.

Overseas markets were firmer going into the big U.S. release

- perhaps partly emboldened by hopes of earlier credit easing in

Europe and elsewhere.

Tech stocks were a winner in Europe and Hong Kong

early on Wednesday after giant Taiwanese chipmaker TSMC

reported a forecast-beating 16.5% rise in

first-quarter revenue - the high end of the firm's own guidance

as its sales boomed on demand for artificial intelligence

applications.

Japan's Nikkei and China's mainland indexes

were underperformers, however.

Japanese government bond yields hit a four-week

high after Bloomberg reported the Bank of Japan will likely

consider raising its inflation forecast at a policy meeting

later this month.

But, still wary of BOJ intervention, the dollar/yen exchange

rate hovered just under the 152 yen level.

BOJ boss Kazuo Ueda said the central bank would not directly

respond to currency moves in setting monetary policy, brushing

aside market speculation that the yen's sharp falls could force

it to raise interest rates.

"We absolutely won't change monetary policy directly in

response to exchange-rate moves," Ueda told parliament.

China's markets were also under a cloud on Wednesday after

Fitch cut its outlook on China's sovereign credit rating to

negative, citing risks to public finances as the economy faces

increasing uncertainty in its shift to new growth models.

The outlook downgrade follows a similar move by Moody's in

December and comes as Beijing ratchets up efforts to spur a

feeble post-COVID recovery in the world's second-largest economy

with fiscal and monetary support.

Chinese government bonds held steady, however.

Key diary items that may provide direction to U.S. markets later

on Wednesday:

* US March consumer price index

* Bank of Canada policy decision, news conference

* World Trade Organization publishes its Global Trade Outlook

* Federal Open Market Committee publishes minutes of March

policy meeting

* Federal Reserve Board Governor Michelle Bowman, Chicago Fed

President Austan Goolsbee and Richmond Fed chief Thomas Barkin

all speak

* US Treasury sells $39 billion of 10-year notes

* US President Joe Biden welcomes Japanese Prime Minister Fumio

Kishida for state visit

(By Mike Dolan, editing by Christina Fincher,

[email protected])