Traders mark time ahead of US CPI, bank earnings

By Stella Qiu and Caroline Valetkevitch

SYDNEY/NEW YORK (Reuters) - Global markets treaded water on Wednesday ahead of U.S. consumer price data that could potentially shift the monetary policy outlook there, while investors waited to see if earnings of big banks would match sky-high expectations.

U.S. equity futures were mostly flat in Asia. Pan-European STOXX 50 futures edged up 0.1% and UK FTSE futures were 0.2% higher ahead of the British consumer inflation report, which could trigger another bout of selling in gilts.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.2%, while Japan's Nikkei swung between losses and gains and was last off 0.3%.

The big movers were the Japanese yen and yields. The dollar fell 0.4% to 157.3 yen as markets now see a 70% chance that the Bank of Japan will raise interest rates in January after its Governor Kazuo Ueda said policymakers would discuss such an option next week.

Ten-year Japanese government bond yields hit 1.255%, the highest since 2011.

For markets, much is riding on the U.S. CPI data due later on Wednesday. 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 relentless selling 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."

Overnight, U.S. producer price data for December was surprisingly tame, with the core measure flat in the month. That restrained the U.S. dollar and pulled short-term Treasury yields off their highs. The S&P 500 closed 0.1% higher.

Still, futures continued to price in just 29 basis points of easing from the Federal Reserve this year, with the first cut not fully priced in until September. While 10-year Treasury yields initially fell on the PPI data, they bounced back and ended the day just a tick lower than the high of 4.809%.

In Asia, the benchmark U.S. yield was off 1 bp at 4.778% on Wednesday.

Investors are also gearing up for U.S. fourth-quarter 2024 earnings, with results from some of the biggest U.S. banks - including Citi and JPMorgan - due on Wednesday. Lenders were expected to report stronger earnings, fueled by robust dealmaking and trading.

In Europe, the spotlight is again on the UK after concerns about its fiscal outlook pummelled government bonds to 16-year lows. The local CPI report is due on Wednesday and is expected to show headline inflation remained steady at 2.6% last month.

The pound slipped 0.1% to $1.2198, just a touch above a one-year low of $1.2099.

In commodities markets, oil prices were higher after ending Tuesday more than 1% lower. [O/R]

U.S. crude rose 0.5% to $77.92 a barrel and Brent was 0.4% higher at $80.21.

(Reporting by Stella Qiu in Sydney and Caroline Valetkevitch in New York; Editing by Jacqueline Wong and Kim Coghill)