US EARLY MORNING: Index futures a little higher ahead of PPI and Uni. of Mich sentiment; next week's Fed and CPI come into focus

SNAPSHOT: US equity futures are a little higher, Treasury yields are narrowing by a couple of basis points as the curve modestly bull steepens. The Dollar Index is a touch beneath neutral. Crude benchmarks are gaining 25-30c. Next week’s Fed and US CPI comes into focus, but before then, we get PPI data for November today, which may garner attention given traders’ hyper-sensitivity to inflation data; PPI is expected to show easing producer prices (similar to what is seen in other US inflation metrics) – we preview the release below. Additionally, we’ll get the prelim University of Michigan sentiment data, where attention will be on the inflation expectations measures. Elsewhere, the Treasury complex may begin to focus on the 3s and 10s supply due Monday, before 30s on Tuesday. Next week’s major central bank updates (Fed, ECB, BoE, SNB) will also feature in trader’s minds (the aforementioned are expected to downshift, although have the potential to add some hawkishness via forecasts and balance sheet policy). Our full day ahead calendar can be accessed here. 

PREVIEW - US PPI (13:30GMT/08:30EST): November producer prices are expected to pare back to 7.2% Y/Y from 8.0%, while the core measure is seen easing to 5.9% Y/Y from 6.7%. Pantheon Macroeconomics has argued that margin expansion, triggered by supply-chain disruption, explains most of the inflation overshoot over the last year, and that margin re-compression will be the source of disinflation pressure over the next year, a view that will be put to the test over the next few months, given improvements in supply-chain pressures. The consultancy notes that the rate of increase of margins has slowed sharply since the Spring, though the level has only just started to fall (-0.3% in September, -0.5% in October). It says that although the monthly numbers are noisy as they include margins for gas stations, which swing wildly when wholesale gas prices move; "this means that reported margins often spike when wholesale prices fall, then drop when retail prices catch up." Either way, Pantheon says that it is more focussed on the path of margins ex-fuels (-0.2% in October, and flat in September, vs an average 0.5% increases across the previous three months, and 0.9% gains in the three months before that). "We think sustained hefty declines are imminent, pulling down core PPI inflation rapidly next year," it writes, "if we’re right, core PCE inflation will fall sharply too, because it tends to track core PPI inflation quite closely."

WEEKLY FLOWS: Bank of America weekly flow report notes cash, stocks, bonds all recorded outflows; but equities see inflows from private clients for the first time in 11 weeks. Global stock funds see outflows of USD 5.7bln; US saw third week of outflows of USD 2.9bln, Europe had 43rd week of outflows at USD 0.3bln, Japan had 2nd week of outflows at USD 0.2bln, EM saw outflows resume at USD 0.8bln. By sector, Large Caps saw USD 1.9bln of outflows, Growth saw USD 1.7bln of outflows, Value saw USD 0.4bln of inflows, Small Caps also saw USD 0.4bln of inflows. Bonds saw outflows of USD 0.1bln; IG bonds saw a second week of outflows at USD 0.6bln, HY bonds saw outflows of USD 0.2bln, EM debt saw its 16th week of outflows at USD 0.3bln, US Treasuries saw a second week of inflows at USD 1.1bln. BofA Bull & Bear Indicator rises to 2.6, which the bank says ends the contrarian buy signal, but suggests that risk rally may continue at slower pace.

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09 Dec 2022 - 09:09- Research Sheet- Source: Newsquawk

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