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A look at the day ahead in U.S. and global markets from Mike Dolan
Hyperactive U.S. policy moves appear to have frozen macro markets this week, with Wednesday’s key U.S. inflation release set to hold Federal Reserve boss Jerome Powell’s benign take on economy up to the light.
Powell basically told Congress on Tuesday that the economy was fine and that Fed policy was sufficiently well calibrated to deal to with uncertainties surrounding the new government plans – credit is still ‘restrictive’ while they wait and see.
“We are in a pretty good place,” Powell told the Senate committee – citing tariffs, immigration, fiscal and regulatory policy as the key variables the Fed will “try to make sense of”.
January’s consumer price inflation report might not contain many clues about the year ahead, but it will cement views on the starting point. Headline inflation is expected to remain just below 3%, with the annual core rate slipping to 3.1%, and Powell gets a chance to comment on the number as he reprises his testimony to the House Financial Services committee later.
But with another sweep of Washington moves overnight on everything from reciprocal trade tariffs to cutting Federal workers, financial markets also appear to have reverted to a ‘wait and see’ mode.
The S&P500 closed flat on Tuesday, about 1% shy of last month’s record high, and index futures showed little movement overnight either.
The fourth-quarter U.S. corporate earnings season provides a pretty serene backdrop, tracking circa 15% annual profit for S&P500 overall, and recent turbulence in the bond market has subsided too.
Worries about investor demand for sovereign debt have been assuaged in recent weeks, with $58 billion of 3-year Treasury notes flying off the shelf yesterday and $42 billion of 10-year paper up for grabs later on Wednesday.
Syndicated government debt sales in Britain and Italy this week have been more than 10 times oversubscribed.
An irksome energy pop did rattle bonds earlier this week, but that too has reversed on Wednesday. U.S. crude ebbed – clocking year-on-year losses of 5% – as industry data out later is expected to show an increase in stockpiles. The Energy Information Administration, meantime, lifted estimates for U.S. crude production while leaving its demand forecast unchanged.
Ten-year Treasury yields hovered just above 4.5% awaiting today’s inflation update and auction.
With tariffs and threats of them flying daily from Washington and retaliatory moves in the works, even currency markets previously so sensitive to the import duties have settled down considerably.
The dollar index, the pivotal euro/dollar exchange rate and even China’s yuan seem stuck in the middle of recent trading ranges. So too are Mexico’s peso and Canada’s dollar.
Part of the reason for the cageyness is the gap between signal and effect – wariness about whether what has been announced or threatened will actually take effect and to what degree tit-for-tat moves cancel out macro impacts.
One currency mover overnight was Japan’s yen, which slipped as investors grew wary of U.S. steel and auto tariffs despite the meeting between President Donald Trump and Japan’s Prime Minister Shigeru Ishiba last week.
Japan’s industry minister Yoji Muto said on Wednesday the nation has requested the United States exempt Japan from the proposed steel and aluminium tariffs.
Bank of Japan Governor Kazuo Ueda, meantime, said the central bank warned of the risks food price rises may start to affect people’s inflation expectations.
In Europe, attention was turning to this month’s elections in Germany but European shares and Germany’s DAX benchmark continued to plow ahead to new records.
With the earnings season underway there too, Heineken led the pack on Wednesday and jumped 12% to its highest since 2023. The brewer reported better-than-expected profit, launched a share buyback and forecasts further growth in operating profit of between 4% and 8% in 2025 – lifting other brewers and beverage firms in the slipstream.
In China, stocks bounced back from Tuesday’s stumble as investors focussed on the buzz surrounding DeepSeek’s artificial intelligence breakthrough.
Back on Wall Street, Lyft dropped 12% after the ride-hailing company forecast current-quarter gross bookings below estimates – dragging bigger rival Uber down 1%.
Super Micro Computer advanced 5% after the server maker said it believes it will be able to file delayed annual and quarterly reports with the U.S. Securities and Exchange Commission by February 25.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* US January consumer price inflation report
* Federal Reserve Chair Jerome Powell’s reprises semiannual monetary policy testimony before House Financial Services Committee. Fed Board Governor Christopher Waller and Atlanta Fed President Raphael Bostic both speak. Bank of England policymaker Megan Greene speaks
* India’s Prime Minister Narendra Modi meets U.S. President Donald Trump in Washington
* Canada’s Prime Minister Justin Trudeau meets EU Commission President Ursula von der Leyen and European Council President Antonio Costa in Brussels
* US corporate earnings: Cisco, Kraft Heinz, Albemarle, Paycom, Biogen, CME, CVS, MGM, Dominion, Equinix, Interpublic, NiSource, Rollins, Smurfit WestRock, Tyler, Ventas, Westinghouse etc
* U.S. Treasury sells $42 billion of 10-year notes
(By Mike Dolan, editing by Hugh Lawson; mike.dolan@thomsonreuters.com)
