Morning Bid: 'Trump trades' pause for breath before US CPI

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

The wide-ranging market bets on big fiscal spending, lower taxes and higher tariffs under incoming U.S. President Donald Trump - collectively dubbed "Trump trades" - took a breather on Wednesday while traders' focus shifted back to economic data.

The dollar has surged and Treasury yields have skyrocketed since last week's election, while market odds for a rate cut at the Fed's next meeting in December have been whittled down to just 62% from 77% a week earlier and 84% a month ago, according to CME Group.

Wednesday brings potentially crucial U.S. CPI data that could either bolster or reverse that trend in rate cut expectations, and kicks off a busy few days that include U.S. producer inflation readings and comments from Fed Chair Jay Powell on Thursday, followed by retail sales figures on Friday.

Powell last week pledged to stay the course on careful, patient monetary easing, saying the central bank wouldn't try to "guess" Trump's policies or their effect on the economy.

Whatever Trump's agenda, it should be easily pushed through Congress, now that Republicans appear to have won a majority of U.S. House seats, marking a government sweep.

This week has brought into sharper relief some of the contradictions across the various Trump trades, which at times work at cross-purposes.

Gold prices have set consecutive record highs this year, partly on bets for higher inflation and government borrowing under Trump, but its momentum has been stymied by the strong dollar.

The U.S. currency stands near a one-year peak against the euro and a multi-month high against the yen, buoyed mainly by the leap in U.S. yields. But surging borrowing costs tend to make equity investors antsy, and are a particular weight on high-flying tech shares and other growth stocks.

As markets analyst Kyle Rodda from Capital.com put it, eventually "higher risk-free rates strangle valuations".

Many of the biggest Asian equity benchmarks are down close to 1% or more, including Japan's Nikkei, South Korea's Kospi and Australia's share index. Hong Kong's Hang Seng is off 0.6% but was down twice that earlier in the session.

Wall Street futures point to additional weakness after Tuesday's pullback, and pan-European STOXX 50 futures are also lower.

The European calendar is fairly light, with financial firms ABN Amro and Allianz headlining corporate earnings announcements.

The Bank of England's Catherine Mann speaks on a panel today, and may draw attention after sterling's sharp sell-off on Tuesday.

But the bulk of central bank speak will come from the Fed again, with regional heads Alberto Musalem, Lorie Logan and Jeffrey Schmid taking to the podium at separate events throughout the day.

Key developments that could influence markets on Wednesday:

-US CPI (Oct)

-Dallas, St Louis, Kansas City Fed chiefs speak at separate events

-BoE's Mann speaks

(By Kevin Buckland; Editing by Edmund Klamann)