Stocks and Bonds Rally in Tandem as U.S. Treasury Yields Decline Broadly

Market Overview

U.S. equities rebounded sharply after inflation data surprised to the downside, reigniting enthusiasm around the markets “rate-cut trade.” The softer-than-expected CPI print, combined with strong earnings from Micron Technology, helped lift the S&P 500 by nearly 0.8%, snapping a four-day losing streak.

Looking ahead, market participants are closely watching this Fridays “triple witching” event, which will mark the largest options expiration on record. Elevated volatility is therefore likely in the near term. European equities also delivered strong performance, with the pan-European index closing at a fresh all-time high.

At the stock level, mega-cap technology names broadly advanced. Tesla led the “Magnificent Seven” with a 3.45% gain, while Micron surged roughly 12% on the back of upbeat earnings results. Trump-related assets saw extreme volatility. Trump Media & Technology Group (DJT) soared more than 40%, while cannabis stocks experienced a sharp “sell-the-news” decline following reports that a Trump executive order would ease regulatory classification.

On the macro and FX front, U.S. Treasury yields fell across the curve following the CPI release, with the 10-year yield briefly approaching the 4.1% level. The U.S. dollar index weakened initially before rebounding modestly to finish slightly higher on the day. The offshore Chinese yuan regained strength, at one point trading close to 7.03.

Risk assets such as cryptocurrencies and commodities underperformed. Bitcoin once again failed to break higher and retreated 5.5% from its intraday peak, while Ethereum briefly fell below the USD 2,800 level. Gold traded largely in line with shifts in risk sentiment and ended the session little changed. Silver saw a more pronounced pullback, sliding toward the USD 65 support area. Crude oil prices remained under pressure amid persistent oversupply concerns, with WTI hovering around USD 56 per barrel.

Key Themes to Watch

● Inflation Slows More Than Expected

The Bureau of Labor Statistics noted that a federal government shutdown prevented the collection of most October price data. This data gap limited the agencys ability to calculate broader inflation measures and month-over-month changes across several key categories for November. According to the BLS, core CPI rose by a cumulative 0.159% over the two-month period ending in November.

Analysts suggest that despite data noise and technical distortions, the broader disinflation trend remains intact, offering renewed optimism to markets and reinforcing discussions around potential future rate cuts.

● Trump Signals on Monetary Policy

Donald Trump stated explicitly that the next Federal Reserve Chair must be someone who supports “aggressive rate cuts,” adding that mortgage rates should decline further. He previously called for policy rates to be reduced to a “crisis-level” 1%. Trump also emphasized that the next Fed Chair should consult with him on interest-rate decisions.

Key Data to Monitor (GMT+8)

23:00 ET (US)

• Final December University of Michigan Consumer Sentiment Index

• Final December One-Year Inflation Expectations

• November Existing Home Sales (annualized, millions)