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Latest US consumer price index due on Jan 15

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Rising global yields keep investors eyeing bond market

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Uncertainty over impact of Trump's policies fans inflation

fears

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Major US banks due to report Q4 results in coming week

By Lewis Krauskopf

NEW YORK, Jan 10 (Reuters) - U.S. inflation data in the

coming week could test the nerves of stock investors and further

inflame worries about rising Treasury yields and uncertainty

over Donald Trump's policy plans.

After back-to-back standout years, the stock market has

wobbled out of the gate in 2025, with the benchmark S&P 500

holding a slim gain so far this year.

A revival of inflation is seen as one of the key risks

facing equities, with the Federal Reserve already pulling back

on its projected interest rate cuts because it expects inflation

to rise at a faster pace than it had previously anticipated.

The monthly consumer price index, due on Jan 15, is among

the most closely watched inflation measures and could spark more

market volatility if it comes in higher than expectations,

investors said.

Monthly inflation data can have an "outsized presence in the

market," said Marta Norton, chief investment strategist at

retirement and wealth services provider Empower.

"If we were to see inflation re-accelerate, that would be

concerning to markets," Norton said. "There's just this kind of

pins and needles moment with every inflation print."

The December CPI is expected to show a 0.3% increase on a

monthly basis, according to a Reuters poll.

While the Fed was confident enough that inflation had

moderated to start cutting interest rates in September, the pace

of annual inflation has remained above the Fed's 2% target. The

Fed now projects inflation will rise 2.5% in 2025.

Minutes from the Fed's latest meeting, released on

Wednesday, showed officials also worried that Trump's policies

on trade and immigration could prolong the effort to bring down

inflation.

The Fed is widely expected to pause its rate-cutting cycle

at its next meeting at the end of the month, but

firmer-than-expected CPI data could push back market projections

for the next cut to even later in the year.

Given "looming questions" about fiscal policy and potential

tariffs, "if the inflationary picture that we have absent those

risks is also moving in the wrong direction, I think that might

challenge market expectations," said Matt Orton, chief market

strategist at Raymond James Investment Management.

A hot CPI number also could further lift Treasury yields

and have broad fallout. A selloff this week in government bonds

around the world, which included 10-year UK gilt yields hitting

their highest level since 2008, sent ripples through financial

markets. Yields rise when bond prices fall.

The benchmark 10-year Treasury yield hit 4.73%, its highest

level since April, before pulling back. Higher yields can

pressure stocks in several ways, including raising borrowing

costs for consumers and companies. A rise in Treasury yields can

improve the attractiveness for lower-risk bonds, increasing

investment competition for equities.

The CPI data headlines a busy few weeks for markets.

Earnings results from major banks such as JPMorgan ( JPM ) and

Goldman Sachs ( GS ) in the coming week kick off fourth-quarter

reports for U.S. companies. S&P 500 company earnings are

expected to have climbed nearly 10% in the quarter from a year

earlier, according to LSEG IBES.

President elect Trump will also take office on Jan 20.

Investors are bracing for quick action from his administration

in areas such as tariffs on imports from China and other trading

partners, as well as stricter controls on immigration.

Speculation about Trump's plans is already jostling markets.

For example, the dollar fell and European stocks rose after a

Washington Post report this week said Trump's aides were

exploring tariff plans that would only cover critical imports.

Trump denied the report.

"We are still waiting to understand the strength of the bite

with Donald Trump's bark," said Bryant VanCronkhite, senior

portfolio manager at Allspring Global Investments.