Morning Bid: Tariff imprint spied in US CPI

A look at the day ahead in European and global markets from Kevin Buckland

The investing world will be watching U.S. factory inflation on Wednesday, after consumer price data pulled Wall Street back from all-time highs overnight, with Fed predictions of tariff-induced inflationary effects starting to be realized.

Both the S&P 500 and Nasdaq - and by extension, MSCI's world equities index - retreated from record peaks after traders shaved back bets of U.S. rate cuts this year as prices rose for things such as coffee and couches, while staying steady for tariff-exempted (for now) items such as cars.

That swung the spotlight squarely onto producer price data due later today, which could reveal an even bigger building of price pressures, because businesses may still be holding back on passing higher costs to consumers.

This validates Fed Chair Jay Powell's repeated assertion that an expected emergence of tariff-led inflation uptick this summer is cause to hold off on further interest rate cuts for now.

Traders were listening, trimming back bets to 43 basis points of cuts over the rest of the year, from closer to 50 basis points earlier in the week.

President Donald Trump's reading of the data was different though, as he took to his Truth Social platform to post, "Consumer Prices LOW. Bring down the Fed Rate, NOW!!!"

Trump has repeatedly railed against the Fed for not cutting rates, even calling for Powell's resignation, which has fuelled concerns that the U.S. President aims to put the Fed under his thumb.

Powell's tenure ends in May next year, but he has a seat on the Board of Governors until January 2028.

Trump said Tuesday that Treasury Secretary Scott Bessent could be a candidate to replace Powell, but "because I like the job he's doing" currently, he may not end up as a contender.

Bessent, meanwhile, said in an interview on Bloomberg Surveillance that a "formal process" is already starting to identify the next Fed Chair.

As if that wasn't enough to keep investors busy, the U.S. earnings season has also just gotten underway. JPMorgan Chase and Citigroup beat expectations on Tuesday, but were met with a mixed market response.

Bank earnings due Wednesday include Goldman Sachs, Morgan Stanley and Bank of America, while Johnson & Johnson will give more of a snapshot of how consumers are faring.

The corporate calendar by contrast is relatively quiet in Europe, where stock futures are pointing to a mixed open, and Britain's FTSE reopens after hitting an all-time peak on Tuesday only to then end the day down 0.7%, its biggest fall since post-"Liberation Day" tariff turmoil in early April.

The main event will be UK consumer price data, with the consensus among economists for headline inflation to hold steady at 3.4%.

Bank of England policymaker Catherine Mann said on Tuesday that inflation pressures remained a challenge despite a fall in the pace of pay growth in recent months.

Key developments that could influence markets on Wednesday:

- UK consumer price index (CPI) for June.

- U.S. earnings: Morgan Stanley, Goldman Sachs, Bank of America, Johnson & Johnson.

- U.S. industrial production, producer price index (PPI).

- U.S. Federal Reserve officials speaking, including Governor Michael Barr.

Trying to keep up with the latest tariff news?

Our new daily news digest offers a rundown of the top market-moving headlines impacting global trade. Sign up for Tariff Watch here.

(Reporting by Kevin Buckland; Additional reporting by Rocky SwiftEditing by Shri Navaratnam)