A Look at the Day Ahead in European and Global Markets

By Ankur Banerjee
Global stocks and non-dollar currencies found some relief from inflation concerns, buoyed by a strong earnings season and a softer U.S. core inflation reading, rekindling hopes for Federal Reserve rate cuts this year.

However, this relief rally may be brief, as U.S. inflation remains concerning and could rise further if the incoming Trump administration implements aggressive tariff and tax policies.

The primary event during European hours will be the sales report from Cartier-owner Richemont (SIX:CFR) on Thursday, offering insights into the high-end demand as luxury firms hope for U.S. consumer support amid weakness in China.

Investors will also monitor developments in the Middle East, especially after Israel intensified strikes on Gaza shortly after announcing a ceasefire and hostage deal to conclude 15 months of fighting.

The slightly soft U.S. core inflation figure for December improved sentiment, lowering Treasury yields and boosting stocks. Analysts advised caution, noting the annual rate of 3.2% remaining high, with the Fed likely to maintain its stance for a while.

Sentiment was further bolstered by strong earnings from top U.S. banks, including Goldman Sachs, JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and Citigroup (NYSE:C). Wall Street CEOs expressed confidence that the new U.S. administration would be favorable for business and banks.

Bank of America and Morgan Stanley (NYSE:MS) will also report results on Thursday.

European chipmakers will look to earnings from Taiwan Semiconductor Manufacturing Co, which met profit expectations, providing insight into AI-related chip demand for clients like Apple (NASDAQ:AAPL) and Nvidia (NASDAQ:NVDA).

The yen saw significant movement in the currency markets, reaching a one-month high due to comments from Bank of Japan Governor Kazuo Ueda that fueled bets on an upcoming rate hike.

A majority of economists expect the BOJ to raise interest rates in one of its two meetings this quarter, leaning toward January. The likelihood of a BOJ hike depends on market stability as Donald Trump returns to office next Monday.

Trump’s inaugural speech will be closely watched by politicians and policymakers globally to assess his expected policy directions. Analysts predict his presidency will drive growth but could also increase inflationary pressures, providing support for the dollar, which has risen 5% since the U.S. election due to expectations of sustained high rates from the Fed.

Scott Bessent, Trump’s Treasury Secretary nominee, pledged to maintain the dollar’s status as the world’s reserve currency while outlining a vision for a “new economic golden age” in his testimony before the U.S. Senate Finance Committee.

In other news, South Korea’s central bank unexpectedly kept its policy interest rate unchanged, indicating a need to wait for stabilization concerning domestic political turmoil affecting the currency before further rate alterations.

Key Developments That Could Influence Markets on Thursday:

• Germany inflation data for December
• UK GDP estimate for November
• Euro zone trade balance for November

(By Ankur Banerjee; Editing by Edmund Klamann)