Shares ease

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SYDNEY/NEW YORK- Global markets treaded water on Wednesday ahead of US consumer price data that could potentially shift the monetary policy outlook there, while investors waited to see if earnings of big banks would match sky-high expectations.

US equity futures were mostly flat in Asia. Pan-European STOXX 50 futures edged up 0.1 percent and UK FTSE futures were 0.2 percent higher ahead of the British consumer inflation report, which could trigger another bout of selling in gilts.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.2 percent, while Japan’s Nikkei swung between losses and gains and was last off 0.3 percent.

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The big movers were the Japanese yen and yields. The dollar fell 0.4 percent to 157.3 yen as markets now see a 70 percent chance that the Bank of Japan will raise interest rates in January after its Governor Kazuo Ueda said policymakers would discuss such an option next week.

Ten-year Japanese government bond yields hit 1.255 percent, the highest since 2011.

For markets, much is riding on the US CPI data due later on Wednesday. Forecasts are centered on a small 0.2 percent rise in the core measure, with risks skewed to the upside. A strong reading of 0.3 percent or more could see the relentless selling in global stocks and bonds resume.

“This CPI print is a pivot data point. A dovish print likely reignites the rally which is likely to get a boost from a strong earnings period,” said analysts at JPMorgan in a note to clients.

“A hawkish print could see the 10Y yield make a run at 5 percent, increasing volatility across all asset classes, and continuing to pressure equities.”

Overnight, US producer price data for December was surprisingly tame, with the core measure flat in the month. That restrained the US dollar and pulled short-term Treasury yields off their highs. The S&P 500 closed 0.1 percent higher.

Still, futures continued to price in just 29 basis points of easing from the Federal Reserve this year, with the first cut not fully priced in until September. While 10-year Treasury yields initially fell on the PPI data, they bounced back and ended the day just a tick lower than the high of 4.809 percent.

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