Stella Qiu looks ahead to the day ahead for European and global markets

Bond investors may take some comfort from benign misses in US producer price data, but UK and US CPI reports will determine whether the ongoing sell-off in global bond markets resumes.

With Donald Trump set to return to the White House next Monday and issue a raft of executive orders, inflation risks appear entirely to the upside. Some analysts warned that even a consensus on the U.S. CPI results would not alleviate the negative pressure on bonds.

In Asia, stocks are struggling to find direction. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.1%, while Japan's Nikkei stock index fluctuated between gains and losses but ended flat.

U.S. stock index futures were flat ahead of UK consumer price data at 0700 GMT, pan-European STOXX 50 futures edged up 0.1% and Britain's FTSE futures rose 0.2%.

A Reuters poll showed that headline inflation is expected to hold steady at 2.6% in December, while the core indicator is expected to edge down to 3.4% from 3.5% last month.

Any higher prices would provide the perfect excuse for speculators to short gilts, which have seen yields surge to 16 on concerns about the UK's fiscal health under finance minister Rachel Reeves year's high.

This will also put pressure on GBP, which is currently anchored near 14-month lows and testing the key chart level of $1.2056.

The next hurdle, which may be more important for investors, is U.S. consumer price index data. The core indicator is forecast to rise 0.2% monthly, with a range narrower than 0.2% to 0.3%.

A reading of 0.3% or higher would trigger another massive sell-off in U.S. Treasuries, pushing the 10-year yield to the 5% mark, boosting the dollar and pummeling stocks. Traders will further lower their expectations for Fed easing this year, starting from the current 29 basis points.

If the reading is 0.2% or lower, there could be a slight pickup in risk appetite and a mitigating rally in bonds.

The U.S. fourth-quarter 2024 earnings report will also be officially released on Wednesday, including results from some of the largest U.S. banks such as Citigroup and JPMorgan Chase.

Lenders are expected to report stronger earnings, driven by strong dealmaking and trading. Because expectations are high, the risk of missing out is high.

Key developments that could affect markets on Wednesday:

——UK Consumer Price Index in December

——French CPI in December

——Eurozone industrial production data for November

——U.S. CPI in December

——Federal Reserve Bank of New York President John Williams, Chicago President Austen Goolsby and Richmond President Thomas Barkin delivered speeches

(Edited by Huang Xinying)