Jan 15 (Reuters) - A look at the day ahead in U.S. and

global markets from Mike Dolan

This week's initial sweep of inflation readouts has calmed New

Year market turbulence, but the main event is yet to come and

it's harder to dispel concern about the rest of the year.

With the critical U.S. consumer price report for December

due later on Wednesday, the advance soundings at home and abroad

were somewhat encouraging - both U.S. producer price and British

consumer price inflation for last month undershot forecasts.

And given both U.S. Treasuries and British gilts have been

at the centre of this year's bond storm, this has offered crumbs

of comfort to restive debt markets.

But there are no champagne corks popping yet. Impressive

headlines aside, the details of the U.S. PPI were far more mixed

and sticky components - such as air fares - may yet irk the

Federal Reserve's favored PCE inflation gauge.

So that just spins everything back into the CPI release,

with big U.S. banks kicking off the U.S. corporate earnings

season before that hits later today.

The upshot for bonds is that 10-year Treasury yields have

come off the boil, ticking back about 5 basis points from

14-month highs above 4.8% first thing on Wednesday. Fed futures

are back comfortably pricing one more Fed rate cut this year,

though hesitating at two.

And as night follows day, that's pulled the dollar index

back lower too.

The less equivocal UK inflation data saw 10-year gilts

outperform after their torrid start to 2025,

offering considerable relief to a government wary of being

forced to tighten fiscal policy again before its underlying

growth priority materialises.

The 30-year gilt yield, the most alarming this

year has pulled back up to 10bps from the 27-year highs it set

on Monday.

Despite the implications for Bank of England easing, the

pound seems to have held the line.

Curiously, Britain's banks have resisted upping mortgage

rates into the gilt jolt. Many are accepting smaller profit

margins and bigger risks on UK mortgage lending despite a

tightening of sterling money markets - with their appetite to

lend greater than worries about higher funding costs.

For U.S. stock markets starting to turn heads to the

earnings season, the bond stabilisation has given some solace.

The S&P500 edged higher on Tuesday, with the small

cap Russell 2000 outperforming. Futures are up

marginally ahead of the bell.

European stocks were higher too, with inflation

updates from France and Spain coming in on forecast - the former

remaining below 2% for the fourth month running.

The European Central Bank is likely to keep easing policy

this year but needs to be cautious as exceptional uncertainty -

from a potential global trade war to domestic politics - clouds

the outlook, two of the bank's top officials said on Wednesday.

"From our point of view, saying here's where we think the

future rate path is going to be conveys a sense of certainty

that we don't feel," ECB Chief Economist Philip Lane said in

Hong Kong.

And it's that level of uncertainty - not least about the

potentially inflationary policies of U.S. President-elect Donald

Trump's incoming administration - that means bond market relief

about backward-looking inflation data may be tempered.

Trump's inauguration is on Jan. 20, but the confirmation

hearing for his Treasury Secretary nominee Scott Bessent is due

tomorrow.

Elsewhere, Chinese stocks underperformed as they

gave back part of Tuesday's sharp rally. Trepidation about

looming U.S. tariff hikes and a fresh sweep of U.S. technology

curbs is keeping sentiment subdued ahead of Friday's big

economic data dump of quarterly GDP and December industry

numbers.

Perhaps one factor unnerving world bond markets this month,

Japan's yen firmed against the softer dollar as

speculation builds about another interest rate rise from the

Bank of Japan as soon as next week.

The Bank of Japan will debate whether to raise interest

rates next week, Governor Kazuo Ueda said on Wednesday,

signalling its intention to take borrowing costs higher barring

a Trump-driven market shock.

"There was a lot of positive talk on the wage outlook" when

the BOJ's regional branch managers met last week, Ueda said.

"We will discuss whether to raise interest rates at next

week's policy meeting and would like to reach a decision."

Key developments that should provide more direction to U.S.

markets later on Wednesday:

* US December consumer price report, NY Federal Reserve January

manufacturing survey

* Federal Reserve issues Beige Book of economic conditions

* New York Federal Reserve President John Williams, Chicago Fed

President Austan Goolsbee, Minneapolis Fed chief Neel Kashkari

and Richmond Fed chief Thomas Barkin all speak; Bank of England

policymaker Alan Taylor and BoE Executive Director for Financial

Stability Strategy and Risk Nathanael Benjamin both speak

* US corporate earnings: BlackRock, JPMorgan, Citigroup, Well

Fargo, Goldman Sachs, Bank of New York Mellon

(By Mike Dolan, editing by Sharon Singleton

[email protected])