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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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Stocks sink, yields jump after blowout jobs data

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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 down

about 1% 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.

Markets pushed out expectations for a next rate cut until June

after a blowout U.S. jobs report on Friday, with stocks falling

sharply and Treasury yields hitting fresh milestones following

the December employment data.

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

most closely watched inflation measures and could spark further

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."

Focus turned to the inflation data following the surprisingly

strong employment report for December. Payrolls soared by

256,000, well above the 160,000 estimate, while the unemployment

rate fell to 4.1%.

The strong jobs growth "has added to the uncertainty about

the trend in inflation, as well as the prospects for the Fed to

cut interest rates in 2025," said Sam Stovall, chief investment

strategist at CFRA.

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 further easing 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.

Following the jobs data, the benchmark 10-year Treasury

yield hit 4.79%, its highest level since November 2023.

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.

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