A Look Ahead: U.S. and Global Markets

By markets correspondent Naomi Rovnick.

The ghosts of inflation past, present, and future are haunting global markets on Wednesday as the U.S. October consumer prices report due later in the day threatens to raise fears about President-elect Donald Trump's tax and tariff policies.

Economists polled by Reuters expect U.S. year-on-year inflation to rise to 2.6% last month, adding to prospects of prolonged high interest rates, which have pushed two-year Treasury yields to their highest since July, while the dollar remains strong.

The potential return of inflation, which dominated markets through 2022 and 2023, suggests that the latest equity market rally—boosted by Trump's anticipated business deregulation and tax cuts—may be vulnerable.

Asian markets sagged on Wednesday, and Wall Street futures imply another downturn from the record levels reached last week. Europe's Stoxx 600 share index is flat.

Bitcoin has eased about 0.8% after its post-election surge nearing $90,000. The euro, impacted by Trump trades, is on track for its fourth consecutive daily drop on Wednesday, briefly trading below $1.06, its weakest in a year.

While markets expect Trump to escalate government borrowing and raise consumer prices with 60% import tariffs on China, he may choose a more cautious approach. Voter anger over inflation, which has risen about 20% in four years, contributed to Trump's election victory, with sustained price rises potentially becoming politically dangerous.

The President-elect also aims to cut what he perceives as wasteful government spending and has appointed Tesla billionaire Elon Musk to lead an efficiency initiative.

In other market developments on Wednesday, a Japanese bond selloff driven by rate hike expectations has pushed five-year yields to a 15-year high, and the yen has fallen beyond 155 per dollar, its weakest since July 30. Sterling, nearly 7% lower in two months, remains in focus ahead of speeches by finance minister Rachel Reeves and Bank of England Governor Andrew Bailey at the Mansion House on Thursday.

Key developments that could influence markets on Wednesday:

• US CPI (Oct)
• Dallas, St Louis, Kansas City Fed chiefs speak at separate events
• BoE's Catherine Mann speaks