Inflation Grinch Creeps Up On Wall Street

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By Naomi Rovnick, global markets correspondent

Wall Street's traditional Santa rally is nowhere to be found as inflation anxiety and geopolitical tensions dominate the market mood.

Brent crude is rallying after U.S. President Donald Trump on Tuesday ordered a "blockade" of sanctioned tankers leaving and entering Venezuela, raising fresh geopolitical tensions at a time of concerns over demand.

Meanwhile, AI fever is red hot in China, an astonishing IPO debut showed.

I'll get into all of the market-moving news below, but first check out Mike Dolan's latest column on how Wall Street analysts's 2025 market calls panned out. Spoiler alert: surprisingly well.

And then listen to the latest episode of the new Morning Bid daily podcast. Subscribe to hear Mike and other Reuters journalists discuss the biggest news in markets and finance seven days a week.

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Today's Market Minute

U.S. President Donald Trump ordered on Tuesday a "blockade" of all sanctioned oil tankers entering and leaving Venezuela, in Washington's latest move to increase pressure on Nicolas Maduro's government.
Warner Bros Discovery's board could announce a decision as early as Wednesday on Paramount Skydance's $108.4 billion takeover bid, with the board likely to advise shareholders to vote against the offer, according to sources familiar with the matter.
British consumer price inflation fell unexpectedly sharply to 3.2% in November, its lowest since March, from 3.6% in October, a day before the Bank of England is widely expected to cut interest rates.
Britain's Labour government has two obvious options for boosting a listless economy: an artificial intelligence-driven productivity boom or closer trading ties with the European Union, argues Mike Peacock, the former head of communications at the Bank of England.
China's steel production in November was the weakest month in nearly two years and will ensure that the world's biggest producer of the metal will post its lowest annual output since 2018, writes ROI Asia Commodities columnist Clyde Russell.

Inflation Grinch Creeps Up On Wall Street

This time of year often brings a Santa rally to Wall Street, yet the S&P 500 share index is heading for its second week of losses and looks set for a tepid open on Wednesday.

Bullish positioning has already turned extreme, suggesting investors have opened most of their presents already, and cautious trading this week signals fear that Thursday's U.S. inflation data will be the Grinch that steals whatever is left under the tree.

Futures markets are still pricing at least two rate cuts from the Federal Reserve for 2026, but inflation signals are broadening.

U.S. jobs growth snapped back in November after a decline in the prior month, and Brent crude futures have jumped 2.1% higher on Wednesday to above $60 a barrel after Trump's fresh threats on Venezuela.

That puts geopolitics firmly into the mix of worries for next year, alongside concerns about big tech overspending, private credit risks and inflation.

Last week's punitive market response to Broadcom and Oracle's earnings were one sign that AI exuberance is running out. The rapid buildout of new data centers threatens to push up U.S. energy prices, leaving investors fretting that rising costs will put chipmakers' margins under pressure.

Asset managers' year-ahead outlooks have been broadly positive on big tech and global economic growth, but questions remain about their plans to add to bullish trades made earlier this year.

Bank of America's monthly fund manager survey, published on Tuesday, found investors' positioning was the most positive it has been in three and a half years - raising doubt about whether there are enough buyers left to sustain the trend. BofA's contrarian "Bull & Bear" gauge of market conditions, which flashes red when optimistic sentiment is stretched, is hovering just above the level that signals it is time to sell out.

Not everything is gloomy, however, with Britain providing what might have been the most unexpected bright spot of the year.

Following the release of lower-than-expected November inflation data, UK debt markets are rallying, with the ten-year gilt yield sharply lower at 4.48%

London's FTSE 100, which is stacked with cyclical businesses whose fortunes are pinned to short-term global growth forecasts and inflation-proof miners and commodities producers has raced 1.7% higher on Wednesday morning. The long-overlooked UK index is also heading for its sixth straight month of gains and remains on track to outperform both the S&P 500 and Europe's Stoxx 600 for 2025.

Today's key chart

Graphics are produced by Reuters.

Higher inflation could well be the flipside of robust U.S. economic growth, which is running at a healthy clip, with the Atlanta Fed's real-time measure suggesting the next GDP report will show further expansion. That should pile some pressure on the Fed to rethink monetary policy and makes Thursday's inflation report all the more crucial for global markets.

Today's events to watch

Federal Reserve Bank of New York President John Williams speaks
Earnings: General Mills Q2, IntegraFin FY, Lennar Q4, Micron Technology Q1

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