US PPI inflation data at 1:30 pm GMT will provide a hint ahead of next week's CPI reading and FOMC decision
US PPI inflation report is a piece of data that is often overlooked by investors. However, today's reading will be different as it will come ahead of CPI report (next Tuesday, 1:30 pm GMT), which is a key report for the Federal Reserve (FOMC decision - next Wednesday, 7:00 pm GMT). While it looks that 50 bp rate hike is a done deal, a significant surprise in inflation data could make Fed members consider other options and may also influence Fed's forward guidance.
It is evident that inflation is slowing all around the globe. Chinese PPI inflation sits in negative territory for 2 months already, while Chinese CPI inflation slowed below 2%. When it comes to the United States, it should be noted that fuel prices dropped 7% in November. However, diesel prices remain at elevated levels. As such, one cannot expect the impact of fuel price changes to be the same in case of CPI and PPI. Nevertheless, other US data reports suggest at easing price pressures.
It is expected that headline PPI inflation has eased from 8.0% YoY to 7.2% YoY in November. Core gauge is expected to drop from 6.7% YoY to 5.9% YoY. However, month-over-month expectations do not look so rosy. Headline measure is seen remaining at October's level of 0.2% MoM while core gauge is seen at 0.2% MoM (0.0% MoM in October). Market participants will look for signs of further slowdown in price growth, that would justify recent recovery on Wall Street and weakening of USD. However, if no such slowdown is spotted, it could be a strong signal for the Fed that inflation problem has not been solved yet and more action may be needed.
Recovery on US100 has been lagging that of the other stock market indices, like US500 or DE30. A lower-than-expected PPI reading could help US100 move towards the upper limit of the wedge pattern and support potential return above 12,000 pts. On the other hand, higher-than-expected reading could lead to another test of the lower limit of the wedge pattern. Source: xStation5