US consumer price index (CPI) data to provide fresh assessment of inflation risks
Wall Street saw the familiar ‘good news is bad news’ dynamics at play last week, as strong US labour data, combined with robust services purchasing managers’ index (PMI) and weekly jobless claims, pushed expectations for Federal Reserve (Fed) rate cuts further into the future. Current projections indicate only a single rate cut in July 2025 through the year, which naturally saw US Treasury yields head higher on hawkish Fed expectations, with the 10-year yields extending another seven basis points (bp) last Friday to 4.76%.
Yields pressure market sentiment
Yields at this level—currently above 4.5%—appear to weigh heavily on risk sentiment, with market trends over the past year indicating persistent downward pressure whenever yields cross this threshold. A meaningful reversal in bond yields will be needed to offer risk markets some stability ahead, with the spotlight placed on the US CPI and retail sales data this week.
Banks lead as earnings season kicks off
The US fourth-quarter (Q4) earnings will also kickstart this week, with major US banks leading the way. Among the eleven S&P 500 sectors, the financial sector is expected to lead in year-over-year earnings growth. Market participants will be closely monitoring how the high-for-longer rate prospects may support the sector’s outlook, alongside the banks’ assessments of economic risks.
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