Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

Rising geopolitical tensions centering on Iran and the U.S. loomed large over world markets on Wednesday, overshadowing strong U.S. retail sales figures to push Wall Street lower, lift oil prices and send gold and other metals prices to new highs.

More of that below. In my column today I look at U.S. inflation, and why it may be stickier than Tuesday's headline CPI figures suggest. Not good news for inflation-weary consumers or policymakers alike.

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* Parsing the "everything" rally

The relentless scramble for hard assets shows no sign of abating, with several precious and base metals surging to new highs on Wednesday. We are barely at the half-way point in January, and silver and tin prices are already up 30%. 

Some of that is safe-haven demand, some is hedging against dollar debasement, and an increasing chunk is speculation. Global stocks and money market funds are also at record peaks, and credit spreads are the tightest in months. Equity sentiment could be beginning to falter though, despite a solid start to the U.S. earnings season. Will it spread?

* China defies the trade war odds

If you'd said last April at the height of Trump's tariff and trade war chaos that China would shrug off America's crippling import duties and go on to record a record-busting $1.2 trillion trade surplus in 2025, you might have got some funny looks.

But official figures from Beijing on Wednesday showed this is exactly what happened, as surging exports to Southeast Asia and Europe, in particular, more than offset fewer shipments to the US. The big loser in all this? Maybe Europe.

 * Don't bank on it

The Q4 U.S. earnings season is underway, with Wall Street's big banks reporting first. So far, they have mostly delivered earnings beats, with strong trading, lending or wider net interest margins behind the rise. Solid demand for credit suggests the economy is in pretty good shape.. 

But banking stocks are under pressure, and not just because of the broader market wobbles. President Donald Trump's controversial call last week to cap credit card interest rates at 10% has triggered widespread pushback across the industry, and investors seem equally alarmed.

While the U.S. CPI inflation report on Tuesday showed a slightly softer-than-expected annual increase in core prices, there's little reason for consumers or policymakers to cheer. 

For consumers, the sharp spike in food prices is a reminder - as if one were needed - of the ongoing affordability crisis. Meanwhile, underlying numbers pointing to upside risks for the Federal Reserve's favored Personal Consumption Expenditures (PCE) inflation gauge will make uncomfortable reading for policymakers. 

Figures showed that the consumer price index (CPI) rose at an annual rate of 2.7% in December, as expected, while core prices excluding food and energy rose 2.6%, a tenth of a percentage point below forecasts. 

On the face of it, this is reasonably welcome news. But food prices surged 0.7% on the month, the biggest rise since October 2022, lifting the annual rate of food inflation to 3.1%.

This comes just as oil prices have been starting to pick up again, with U.S. President Donald Trump's unpredictable and controversial foreign policy agenda raising geopolitical tensions. True, oil prices remain relatively low and may well be capped by a looming oversupply, but the recent uptick is still liable to worry U.S. households nonetheless.