Inflation is hot in the euro zone, according to Reuters

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The latest inflation data from Germany and Spain suggest investors betting the European Central Bank will cut rates by a percentage point in the first half of 2025.

The euro zone’s harmonized index of consumer prices (HICP), due later today, is expected to have risen 2.4% in December, faster than 2.2% in November.

Inflation indicators in Spain and Germany are showing higher-than-expected increases in inflation.

This week’s rate data will be the last before the ECB’s next meeting on January 30. Any signs of further easing of inflation could prompt ECB policy easing and support for the struggling economy.

Energy may be a thorn in the ECB’s side with 14-month high prices. German inflation rose more than expected in December due to a slight drop in energy prices.

The 2022 increase will not be repeated, but prices appear to be higher than in recent years and with fewer gas reserves compared with the end of Russia’s decades-long agreement to supply gas to Europe via Ukraine.

Britain faces a similar problem as wage rises continue to outpace inflation. Britain’s 30-year government bond yields hit their highest level since 1998 on Monday.

Meanwhile, markets still believe that US President-elect Donald Trump’s tariff agenda will not be as aggressive as feared. That’s despite Trump denying the Washington Post story, saying he’s going soft.

After U.S. stocks rose for a second day and the dollar rose against major and emerging currencies, Asian stocks extended their rally in Europe and global stocks into Tuesday.

Major payments in Europe jumped on Monday, with 40 up 2.2% and 1.5% higher. The auto sector rose nearly 3 percent, its best performance in more than a year.

If U.S. tariffs are significantly lower than Trump promised on the campaign trail and targeted only at “critical” sectors, the outlook for global growth should improve and the dollar should weaken.

Trump’s refusal sent Treasury yields higher ahead of debt auctions this week. The 30-year yield hit a one-year high and closed at 5.00%.

In other news, investors are watching the political drama in Canada following Prime Minister Justin Trudeau’s announcement that he will step down.

Key developments that could impact markets on Tuesday:

Economic data: UK Halifax house prices, Italy CPI, France CPI, Eurozone HICP and unemployment rate, US ISM non-manufacturing PMI

Fed Speakers: Federal Reserve Bank of Richmond President Thomas Bark speaks in Raleigh

Debt auctions: Germany reopens 2-year auction, Utd Government (Tadawl:) 30 year tender will be re-opened.