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

Vidya Ranganathan

If the latest inflation data from Germany and Spain is

anything to go by, investors betting the European Central Bank

will cut rates by almost a percentage point in the first half of

2025 could be in for disappointment.

The euro zone's harmonised index of consumer prices (HICP)

is due later today and expected to have risen 2.4% in December,

speeding up from 2.2% in November.

Indicators already out show prices heating up with

faster-than-expected pickups in inflation reported in Spain and

Germany.

This week's prices data will be the last before the ECB's

next meeting on Jan. 30. Any signs that inflation is easing

further would give the ECB scope to loosen policy and support a

struggling economy.

Energy could be a thorn in the ECB's side with natural gas

prices at 14-month highs. Germany's faster-than-forecast

inflation in December was due to a smaller drop in energy

prices.

It's not going to be a repeat of 2022's surge, but prices

look set to remain elevated with less gas in storage compared

with recent years and the end of a decades-long deal for Russia

to supply gas to Europe via Ukraine.

Britain also faces a similar dilemma as wage growth adds to

inflation pressures. British 30-year government bond yields

came within a whisker of their highest level since

1998 on Monday.

Meanwhile, markets still believe U.S. President-elect Donald

Trump's tariff agenda won't be as aggressive as feared. That's

despite Trump denying a Washington Post story saying he will go

soft.

Asian stocks extended the rally in European and world

equities to Tuesday after U.S. stocks rose for a second day and

the dollar fell against developed and emerging currencies alike.

Major bourses across Europe jumped on Monday, with France's

CAC 40 up 2.2% and Germany's DAX 1.5% higher.

The auto sector surged nearly 3%, marking its best

performance in over a year.

If U.S. tariffs are broadly lower than Trump promised on the

campaign trail and aimed only at "critical" sectors, then the

outlook for global growth should improve and the dollar should

weaken.

Trump's denial kept Treasury yields elevated ahead of this

week's debt auctions. The 30-year yield is the highest in over a

year and closing in on 5.00%.

In other news, investors are watching the political drama in

Canada following Prime Minister Justin Trudeau's announcement

that he will step down.

Key developments that could influence markets on Tuesday:

Economic data: UK Halifax house prices, Italy CPI, France

CPI, Euro zone HICP and unemployment rate, US ISM

non-manufacturing PMI

Fed speakers: Federal Reserve Bank of Richmond President

Thomas Barkin speaks in Raleigh

Debt auctions: Germany reopening of 2-year auction, United

Kingdom reopening of 30-year auction

(Editing by Sam Holmes)