A look at the day ahead in European and global markets from

Stella Qiu

Bond investors may have drawn some comfort from the benign

miss in U.S. producer price data but a duo of CPI reports from

Britain and the U.S. is set to decide whether the relentless

selling in the global bond market resumes.

And the risks to inflation seem squarely to the upside, with

Donald Trump set to return to the White House and release a

blizzard of executive orders next Monday. Some analysts warned

that even a consensus result for U.S. CPI will not relieve the

bearish pressure on bonds.

In Asia, shares struggled for direction. MSCI's broadest

index of Asia-Pacific shares outside Japan eased

0.1%, while Japan's Nikkei swung between gains and

losses, but was last flat.

U.S. equity futures were flat, while Pan-European STOXX 50

futures edged up 0.1% and UK FTSE futures were

0.2% higher ahead of British consumer price data due at 0700

GMT.

Headline inflation is expected to remain steady at 2.6% in

December, while the core measure is seen easing a tad to 3.4%

from 3.5% the prior month, according to a Reuters poll.

Anything higher would offer the perfect excuse for

speculators to short gilts, where yields have soared to 16-year

highs amid worries about Britain's fiscal health under the

leadership of finance minister Rachel Reeves.

It will also pile pressure on the pound, which is pinned

near a 14-month trough and testing a key chart level of $1.2056.

The next hurdle, probably more significant, for investors is

the U.S. CPI data. Forecasts are for a monthly rise of 0.2% in

the core measure, with the range tight at 0.2% to 0.3%.

A reading of 0.3% or more would trigger another bout of

heavy selling in Treasuries, with 10-year yields headed to the

5% mark, lifting the dollar and pummelling stocks. Traders will

further pare back expectations for policy easing from the

Federal Reserve this year, from the current 29 basis points.

A reading of 0.2% or below will likely see risk appetite

return a little and a relief rally in bonds.

U.S. fourth-quarter 2024 earnings will also kick off in

earnest on Wednesday, with results from some of the biggest U.S.

banks - including Citi and JPMorgan ( JPM ).

Lenders were expected to report stronger earnings, fuelled

by robust dealmaking and trading. Given lofty expectations, the

risk to miss is high.

Key developments that could influence markets on Wednesday:

-- UK CPI for December

-- France CPI for December

-- Euro zone industrial production figures for November

-- US CPI for December

-- Fed's New York President John Williams delivers a speech,

as well as Chicago President Austan Goolsbee and Richmond

President Thomas Barkin

(Editing by Jacqueline Wong)