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

Dolan

Wall Street's best day of the year so far was rooted in

inflation relief and a boom in bank stocks reporting bumper

earnings, with a retail readout up next on Thursday.

After Tuesday's sub-forecast producer price data, the

December consumer price index also surprised and the annual

'core' CPI inflation rate showed disinflation resuming.

With key price components on shelter and services better

behaved, the 6-month annualised core CPI rate is now back below

the Federal Reserve's 2% target to its lowest in four years.

That news sparked a significant rally in troubled U.S.

Treasuries and global sovereign bonds, with 10-year Treasury

yield recoiling by a whopping 15 basis points on the day before

steadying overnight about 4.66%. The chance of a second Fed

interest rate cut this year, off the radar so far this year, was

back priced at 50% in futures markets.

The dollar fell back with them, with the dollar/yen

pair retreating to a new year low as speculation about

another Bank of Japan interest rate rise next week builds.

The relief spread out across U.S. stock indexes

too, with bumper fourth-quarter earnings from the

big U.S. banks adding to the whoosh. Goldman Sachs ( GS ), Citi

and Wells Fargo ( WFC ) all gained more than 6% on the

day and the S&P 500 bank index, which has outperformed

the wider market right through January, added another 3.4%.

And in the backdrop there was also some relief in the

geopolitical picture with Wednesday's announcement of a complex

ceasefire accord between Israel and Hamas - although that did

little to rein in crude oil hovering near 6-month highs

in a tightening energy market.

With another sweep of bank reports due on Thursday, Wall

Street futures have retained most of the prior day's rally.

And for bond markets in particular, today delivers another

stream of important economic soundings ahead of next week's

inauguration of Donald Trump for a second four-year presidential

term.

The December retail sales report will give a glimpse of

holiday season activity, but weekly jobless claims numbers will

also be watched closely after last week's latest "hot" payrolls

report. The Philadelphia Fed's January business sentiment survey

is also out.

Wednesday's release of the Fed's Beige Book on prevailing

economic conditions showed activity increased slightly in late

November and December, with employment ticking up and prices

rising moderately.

But a heavy slate of Fed speakers noted that while the

latest inflation data was helpful, uncertainty was high about

the coming months as they await policies from the incoming Trump

administration.

To that effect, Thursday's Senate hearing for Trump's

Treasury Secretary pick Scott Bessent will be watched very

closely for clues about what happens next.

On Wednesday, Trump's choice to oversee the federal budget,

Russell Vought, defended the president-elect's goal of cutting

spending by refusing to spend money that Congress has already

authorized.

Vought, who also headed the Office of Management and Budget

during Trump's first term, questioned the constitutionality of a

1974 law governing how Congress can review presidential refusal

to spend, a process called "impoundment."

Overseas, Wednesday's Treasury recovery was outpaced by

equally agitated British "gilts" after UK inflation

also surprised to the downside and both GDP and industrial

reports for November undershot forecasts too on Thursday.

The 30-year gilt has fallen back some 20bps from

Monday's 27-year peak with Bank of England easing speculation

re-ignited. The pound also slipped again.

BoE interest rate setter Alan Taylor said on Wednesday he

expected the central bank to cut four times in 2025, twice the

pace priced into financial markets.

Global stock markets followed Wall Street higher on

Thursday, with European stock indexes also gaining

almost 1% as German and other euro inflation updates showed

price pressures remained contained last month.

China and Hong Kong shares edged up to join a broader rally

in Asia, with sentiment buoyed by state media reports of

potential easing measures from Beijing in coming weeks.

State media reported that China's central bank may cut

banks' reserve requirement ratio before the Spring Festival at

the end of this month.

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

markets later on Thursday:

* US December retail sales, weekly jobless claims, Philadelphia

Federal Reserve's January business survey, NAHB Jan housing

index, Dec import/export prices, November retail/business

inventories; Canada Dec housing starts

* US corporate earnings: Bank of America, Morgan Stanley, M&T

Bank, UnitedHealth, US Bancorp, PNC Financial, JB Hunt

* Senate confirmation hearing for U.S. Treasury Secretary

nominee Scott Bessent

* European Central Bank board member Mario Centeno speaks;

Turkey's finance minister Mehmet Simsek speaks in London

(By Mike Dolan, editing by Ros Russell

[email protected])