(Reuters) – Global markets face a choppy ride ahead of U.S. Inauguration Day on Jan. 20, with Britain and the U.S. releasing key inflation data, China posting growth figures as Wall Street earnings and European IPOs begin .
A sell-off in global markets is also unsettling investors, with UK markets at the center of the storm.
Here’s what’s in store for global markets in the coming week from Kevin Buckland in Tokyo, Saeed Ahmed and Lewis (JO:) Krauskopf in New York and Anousha Sakoui and Naomi Rovnick in London.
1/ STAGFLATION NATION
Britain’s economy is stagnating, while inflation has returned to its highest level in eight months, putting the Bank of England in a bind.
As if that wasn’t enough, UK gilts are firmly in the crosshairs amid the global bond squeeze. With the pound sinking and 30-year bond yields at their highest level for more than a quarter of a century, Chancellor of the Exchequer Rachel Reeves faces her first major test, which could force her to cut future spending.
Traders expect UK interest rates to fall from 4.75% to 4.25% this year, but consumer prices data from January 15 will show whether the Labor government’s public sector pay rises and tax hikes for employers have made monetary easing risks unbearable.
Unless inflation moderates, the prospect of the BoE becoming paralyzed by uncertainty looks set to grow.
2/ CONSEQUENCES OF INFLATION
US inflation data will provide a major test of the recent rise in government bond yields and tempered investor expectations for a Fed rate cut this year.
December’s consumer price index, due out on Wednesday, is expected to show a 0.3% month-on-month rise, according to a Reuters poll, after a similar rise in the CPI the previous month.
For investors, the rate of inflation is one of the main risk factors. At its December meeting, the Fed forecast just two rate cuts this year as it braced for higher inflation than it had previously estimated. Market expectations are rising by around 40 basis points in 2025.
Red-hot inflation could further lift yields on government bonds, whose rapid rise in recent weeks has rattled asset prices.
3/ THE ART OF TRADE WAR
On January 17, he is expected to confirm that China’s stimulus-driven fight against deflationary forces has enabled it to reach its 2024 growth target of 5%.
But there is no time to celebrate, a much bigger battle is looming, and Beijing is already raising its defenses. Donald Trump’s return to the White House on January 20 could mean that the threat of 60% tariffs on Chinese imports is becoming a reality.
The People’s Bank of China announced the sale of an unprecedented 60 billion yuan ($8.18 billion) worth of six-month yuan notes in Hong Kong. That will drain liquidity to protect the currency just before Trump’s inauguration, although wide yield differentials with the US will keep pressure on the currency – already at a 16-month low.
4/ BANKING OF EARNINGS
High investment banking fees, strong trading income and easing upward pressure on deposit rates should make for a happy earnings season for US banks.
Higher deal volume and strong bond underwriting helped boost investment banking fee income in the fourth quarter by 26% year over year, Dealogic data shows. Trading revenues reached a record $224.6 billion last year, according to research firm Coalition Greenwich.
The outlook for net interest income (NII) – the difference between what banks earn on loans and what they pay on deposits – will be closely watched.
JPMorgan, Wells Fargo (NYSE:), Citigroup (NYSE:) and Goldman Sachs will begin earnings on Wednesday, while Bank of America and Morgan Stanley (NYSE: ) to report results on Thursday.
5/ PREPARATION FOR THE DEBUT
Companies in Europe are getting ready to go public.
Spanish travel technology group HBX Group, whose brands include Hotelbeds, is planning a 1 billion euro ($1.03 billion) offering in the coming week. German drug maker Stada – potentially valued at €10 billion – and fast fashion retailer Shein are among those expected to follow in the first half of the year.
The outlook for European publishers has become fairer Deutsche Bank (ETR: ) and Citigroup analysts are bullish on European stocks for 2025.
Last year was a mixed bag: 101 European company IPOs raised $19.3 billion – 18% more than in 2023. But that’s seven fewer transactions than the previous year, LSEG data shows.
(Graphics by Sumanta Sen, Vineet Sachdev, Prinz Magtulis, Kripa Jayaram and Pasit Kongkunakornkul, compiled by Karin Strohecker, edited by Alex Richardson)
