Stock Market Today: Dow, Nasdaq and S&P 500 set to rally as Treasury yields dip. PPI data on tap.

Japan’s 10-year bond yields rose to their highest in nearly 14 years as investors eye more interest rate rises by the Bank of Japan.

Continued evidence that Japan’s years-long period of deflationary pressure has ended – notably shown of late by sharp increases in wage demands – is causing investors to move out of government debt, pushing up yields.

The 10-year JGB yield on Tuesday rose 3.2 basis points to 1.244%, the steepest since the spring of 2011. Japan’s 40-year yield rose to 2.755%, its highest since the bond’s inception in 2007, according to Bloomberg. Yields are also being pushed higher by a broader global selloff in government bond markets on concerns about stubborn U.S. inflation.

The BOJ will hold its January policy meeting on the 23rd and 24th. Derivatives markets are pricing in a 60% chance of a rate hike at next week’s meeting, and 83% by March, according to Bloomberg. The BoJ’s current main rate is just 0.25%, though that’s the highest since 2008.

The Japanese yen changed hands around 158 per dollar on Tuesday – just shy of multi-decade lows for the yen – as the yield differential between benchmark U.S. and Japanese paper was 355 basis points, near the widest since May.

Producer prices aren’t always released before consumer price data, but this month they are — and historically, they can serve as a good indicator of what’s to come.

Brett Donnelly looked at PPI data from 2014 to 2024. He finds that if both the headline and core PPI are the same way relative to market expectations — whether they beat or miss — they offer a good signal for CPI.

December PPI data, he adds, leans weak, based on the last decade of data.

“It is possible that economists have finally factored this uncaptured seasonality into their models at this point, and it’s also possible that the sample size is too small to matter. Given the effect is at the turn of the year, which is the noisiest time for inflation due to price resets, my guess is that it is more likely to be persistent and so I would bet more on a weak number today,” he says.

Stocks making notable moves in Tuesday’s premarket action:

An auction of £1 billion worth of 30-year U.K. government inflation-linked gilts on Tuesday was covered 3.06 times, said Britain’s Debt Management Office.

This means orders for the notes were more than three times greater than the DMA was selling, and indicates robust demand despite recent concerns that the U.K. may have to increase debt issuance to fund its budget deficit.

U.K. bond yields have surged of late in line with peers in the U.S. as markets become more wary of stubborn inflation, alongside, in Britain’s case, a faltering economy.

Benchmark 10-year gilt yields moved lower shortly after the auction announcement, trading at 4.878%, down 1.3 basis points on the session. They remain near their highest since 2008 ahead of comments in Parliament from U.K. finance minister Rachel Reeves expected later on Tuesday.

However, a bigger test for the U.K. bond market will come on Wednesday when the DMA auctions £4 billion of 10-year gilts. The sale will come a few hours after the U.K. consumer price index report for December is published. Economists expect annual headline CPI inflation to be 2.6%, the same as the month before and still above the bank of England’s 2% target, making further interest rate cuts less likely.

The FTSE 100 in London was up 0.1% and the pound was down 0.1% to $1.2184. On Monday, the pound fell to $1.2100 for the first time since October 2023.

China’s equity market led Asian bourses higher on Tuesday, registering their best performance in more than two months.

The CSI 300, an index of the biggest mainland A-shares traded in Shanghai and Shenzhen, gained 2.6%, its biggest daily rise since November 7, according to Reuters. Hong Kong’s Hang Seng bounced off a four-month trough, adding 1.8%.

Investors were buoyed after Beijing said the China Securities Regulatory Commission will take efforts to lift stocks and that the People’s Bank of China will bolster the lending and funding scheme revealed last year that was designed to support the market.

Here are some of the potential market catalysts due Tuesday for traders to consider:

How are stock-index futures trading:

On Monday, the Dow Jones Industrial Average rose 359 points, or 0.86%, to 42,297, the S&P 500 increased 9 points, or 0.16%, to 5,836, and the Nasdaq Composite dropped 74 points, or 0.38%, to 19,088.

Futures indicate tech stocks may lead the market higher on Tuesday as a slight dip in benchmark Treasury yields revives traders’ risk appetite.

The S&P 500 sits 4.2% below its record high touched in December, having endured a difficult period as the 10-year Treasury yield surged, yesterday climbing to 4.80%, its highest since late October 2023, amid concerns about sticky inflation.

Hopes that President-elect Donald Trump’s tariff proposals may be less draconian than feared – and therefore less inflationary – have stalled the rise in bond yields and encouraged equity bulls early in the new session.

“Stock markets are…in recovery mode, as risk sentiment gets a boost from reports that Donald Trump will implement a gradual programme of tariffs. This has eased inflation fears as we get closer [to] Trump’s inauguration,” said Kathleen Brooks, research director at XTB.

Investors are also looking ahead to Wednesday, when the crucial consumer price index report for December will be published and some of Wall Street’s big banks will kick off the fourth quarter earnings season.