By Amanda Cooper
LONDON (Reuters) – Global stocks edged up on Wednesday in cautious trading ahead of U.S. consumer price data that could shift the country’s monetary policy outlook, while investors waited to see if the earnings of big U.S. banks would match sky-high expectations.
The bond market got some respite from the recent heavy selling, as yields on Treasuries ticked lower and those on German 10-year Bunds broke their second-longest stretch of price losses in over 40 years.
Wall Street futures rose 0.2-0.3% by midday in Europe, where the regional STOXX 600 index rallied 0.7% on the day, led mostly by gains in rate-sensitive UK homebuilders, after data showed an unexpected cooling in British inflation.
BlackRock, the world’s largest money manager, was one of the first major financial companies to report earnings on Wednesday. The company said assets under management hit a record $11.6 trillion in the fourth quarter.
U.S. bank BNY reported a rise in fourth-quarter profit ahead of bigger rivals JPMorgan and Citigroup before the opening bell and ahead of consumer inflation numbers that could inform expectations of what the Federal Reserve might do to interest rates this year.
ADM Investor Services Chief Global Economist Marc Ostwald said the central bank’s “Beige Book” for December, which captures anecdotal evidence of conditions across the 12 Federal Reserve districts, reported an uptick in economic activity, but an expectation for price pressures to persist.
“Given the strength of the latest labour data, and expected strength in this week’s activity data, the data will likely strengthen the Fed’s resolve to pause its rate cutting cycle,” he said.
Right now, the swaps market shows traders believe there is only likely to be one rate cut this year, with a second quarter-point reduction being a more distant possibility, as just 31.4 basis points of easing are priced in.
This was closer to 45 bps about a week ago, before the December employment report on Friday showed robust jobs growth.
PIVOT POINT
For the CPI report, forecasts are centred on a small 0.2% rise in the core measure, with risks skewed to the upside. A strong reading of 0.3% or more could see the selloff in global stocks and bonds resume.
“This CPI print is a pivot data point. A dovish print likely reignites the rally which is likely to get a boost from a strong earnings period,” said analysts at JPMorgan in a note to clients.
“A hawkish print could see the 10Y yield make a run at 5%, increasing volatility across all asset classes, and continuing to pressure equities.”
