US inflation data and stocks in focus

European markets traded higher on Wednesday as investors reacted to cooler-than-expected inflation in Britain and awaited US inflation data that will inform the Federal Reserve’s decision-making on rate cuts.

The pan-European Stoxx 600 was about 0.4% higher in early trade, with most sectors and all major bourses in positive territory shortly after the opening bell.

London’s FTSE 100 was 0.6% higher at 9:05am London time after official data showed UK inflation fell to a lower-than-expected 2.5% in December. Economists polled by Reuters had expected the reading to remain unchanged from the 2.6% print in November.

The global market focus on Wednesday is on the US Consumer Inflation Index, due out at 8:30 ET. Economists polled by Dow Jones see headline CPI rising 0.3% on a monthly basis and rising 2.9% over the previous 12 months.

The data will come hot on the heels of December’s wholesale inflation report, which came in lighter than expected. The producer price index added just 0.2%, less than the Dow Jones consensus estimate for a 0.4% gain.

Both reports will inform the Fed’s interest rate policy when it meets later this month. Fed funds futures trading suggests a near-certainty that the Fed will keep interest rates on hold at the conclusion of its two-day meeting later this month. Market prices also suggest a 97% chance of prices remaining at their current target range of 4.25%-4.5% in March, according to CME FedWatch Tool.

Back in Europe, British government borrowing costs fell on Wednesday after Britain’s December inflation pressures. The yield on British 2 and 5 years gilts – UK government bonds – each fell 11 basis points but remained high at 4.487% and 4.51% respectively.

Long-term public borrowing costs were also lower 10, 20 and 30 years gold-plated interest rates each fall by 8 to 9 basis points at 9:47 London time.

In recent weeks, gilt yields rose to multi-decade highs as investors became wary of the shape of the UK economy.

Global bond yields have continued to rise as traders expect a slower pace of rate cuts this year with both signs of economic strength and potential weakness ahead. Jobs data last week showed nonfarm payrolls grew much faster than expected in December, but President-elect Donald Trump has said he will adopt tariff policies when he takes office that are expected to be inflationary.

Investors from the state will also keep an eye on big bank earnings on Wednesday: JPMorgan Chase, Citigroup, Goldman Sachs and Wells Fargo are set to report fourth-quarter results. Morgan Stanley and Bank of America are due to report on Thursday.