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; mike.dolan@thomsonreuters.com)
