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

Dolan

Talks to end the Ukraine war have partly cut across the hot U.S.

inflation report for world markets, reining in both oil prices

and capping aggravated U.S. borrowing rates - while also lifting

the euro and European shares.

Long-flagged by U.S. President Donald Trump as a priority,

Wednesday's news that he spoke with Russian President Vladimir

Putin and Ukrainian President Volodymyr Zelenskiy on talks to

end the war dragged crude oil lower.

With Russia still the world's third-largest oil producer,

the prospect of some future lifting of sanctions on its crude

exports saw U.S. oil prices fall back to $70 per barrel and

close to the year's lows - down some 4% from Tuesday's close.

Helped by data showing a surprising build in crude stocks

last week, that's left year-on-year oil prices down almost 10% -

tracking the biggest annual decline in two and a half months.

The Ukraine initiative emerged after January's biggest

monthly gain in U.S. consumer prices in 17 months had catapulted

U.S. Treasury yields higher and all but removed futures

pricing for a second Federal Reserve interest rate cut this

year.

As it stands, barely one additional Fed cut is now priced

for 2025 and not before October.

Even though market-based U.S. inflation expectations over

two years hit their highest since shortly after the

Ukraine invasion in 2022, the oil retreat helped drag 10-year

yields back down about 6 basis points from three week highs hit

after the CPI report. They hovered about 4.6% on Thursday.

And with producer price numbers out later today, Fed chair

Jerome Powell emphasised on Wednesday that the bad news on CPI

would not be taken in isolation and components from the PPI that

feed into the Fed's favoured 'personal consumption expenditures'

(PCE) inflation gauge would be watched closely.

"You need to know the translation from CPI to PCE, and we

get more data on that tomorrow with the Producer Price Index,"

Powell told Congress, adding "we'll know what the PCE reading is

late tomorrow."

Other Fed officials echoed Powell's broad thrust that the

Fed was in no hurry to lower rates again with so many wider

uncertainties. Atlanta Fed boss Raphael Bostic said he would not

be comfortable resuming rate cuts until there was more clarity.

The dollar's reaction to the whole piece has been different

than usual, with its main index slipping despite the

hawkish Fed view and elevated Treasury yields.

That's mainly because the euro got a shot in the arm

from the prospect of a Ukraine deal that could boost European

sentiment and possibly lift the long-standing energy squeeze in

Europe - even with uncertain implications for European security

longer term.

Euro zone stocks continued to set new record highs

Thursday - gaining another 1% even as Wall Street ended

in the red yesterday after the inflation jolt and S&P500 futures

remained flat before today's bell.

Remarkably, given the trends of recent years, the near 10%

year-to-date gain in euro stocks in dollar terms is four times

that of the S&P500 for 2025 so far.

Earnings season updates have helped the broader European

equity complex. Nestle jumped 6% on its annual

sales growth beat, boosting the food and beverages index

by more than 2%.

On the Ukraine front, the next big set piece is Friday's

international security conference in Munich. And next week's

German election is also now top of mind there.

Elsewhere, the pound also got a lift from news that

Britain's economy unexpectedly grew by 0.1% in the final quarter

of last year - offering some respite from the downbeat economic

picture facing finance minister Rachel Reeves.

In Asia, Chinese stocks fell back on

Thursday as trade war and domestic economic worries offset some

of the recent optimism about the tech sector and artificial

intelligence developments there.

Chinese tech stocks reversed an early rally to multi-year

highs and the Hang Seng Tech Index closed down 1%.

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

markets later on Thursday:

* US January producer price report, weekly jobless claims

* New York Federal Reserve issues Q4 2024 Household Debt and

Credit Report; European Central Bank board member Piero

Cipollone speaks

* US corporate earnings: Ameren, Airbnb, Global Payments, PG&E,

PPL, Moody's, Duke Energy, Howmet, Molson Coors, American

Electric, Applied Materials, GEHealthcare, Baxter, CBRE, DaVita,

Dexcom, DTE, Digital Realty, Federal Realty, Motorola, Palo Alto

Networks, Republic, Wynn, West Pharmaceuticals, Zoetis etc

* U.S. Treasury sells $25 billion of 30-year bonds

* Ukrainian President Volodymyr Zelenskiy arrives in Munich

ahead of international security conference

(By Mike Dolan, editing by Ros Russell

[email protected])