Daily Market Outlook, December 9, 2022

Wall Street Rebounds Ahead of US Producer Prices Data

Wall Street broke a week-long losing streak at the close of New York trading, and Asian equity markets followed suit erasing losses on the week, while investor sentiment remains somewhat shaky, markets have been buoyed by a belief that inflationary pressures are finally starting to ease, Chinese data overnight showed consumer inflation falling from 2.1% to 1.6%. The Nikkei was a standout performer as the Prime Minister denied reports of an increase in income tax, and investors took further solace from reports out of China that authorities are mulling additional easing of restrictive property market policies, with official announcements due next week.

For the trading day ahead, investors will be focused on headline data out of the US in the form of producer price inflation and the University of Michigan consumer sentiment report. Producer price data will be parsed for further signs of moderation in inflation ahead of next week's all-important CPI release, Fed officials will be hoping to see signs that services price inflation is declining, as this is a key input to the overall inflation calculation as Fed officials look to the rate path for 2023. Markets have penciled in a PPI to print a 7.2% versus the prior 8%, while the core metric ex-energy and food is expected to decline from the prior 6.7% to a number sub 6%. With respect to the University of Michigan sentiment survey, market watchers are looking for a number broadly in line with last month's 56.8, confirming that the US consumer remains cautious given the restrictive rate environment and ongoing inflation concerns, additionally, consumer inflation expectations will be monitored given the rise seen over the past two months.

Markets-wise the rebound in investor risk sentiment into the weekend has seen US Treasury yields take a breather, declining sub 3.5% overnight, weighing on the greenback and supporting equities, European bourses have opened broadly higher, however, investors are likely to remain pensive ahead of next week's heavy data slate, which includes US headline inflation and central bank meetings for the US, UK, and the Eurozone.