PMI surveys, producer inflation, and a consumer sentiment update

U.S. equity markets recovered losses to finish flat and mixed on Friday, after a stronger-than-expected jobs report raised concerns about more aggressive tightening by the Federal Reserve. However, markets still posted gains for the week following a sharp rally on Wednesday, with the Dow gaining 0.2%, the S&P 500 rising 1.1%, and the Nasdaq climbing 2.1%. U.S. Treasury yields fell steeply this week, with the yield on the 10-year note touching a two-month low of 3.5% on Thursday. The inversion of the yield curve, typically considered a sign of a coming recession, continued to deepen with the two-year note now yielding nearly 80 basis points (bps) more than the 10-year note.

The price of West Texas Intermediate (WTI) crude—the U.S. benchmark—fell to a new year-to-date low of $73.50 per barrel on Monday, before rallying to close the week near $80 per barrel ahead of a meeting of OPEC and its allies on Sunday, while European Union officials agreed upon a price cap of $60 a barrel on Russian oil.

Next week, Purchasing Managers’ Index (PMI) surveys from S&P Global and the Institute for Supply Management (ISM) will provide insights into U.S. manufacturing and service sector performance. On Friday, the Bureau of Labor Statistics (BLS) will release its Producer Price Index (PPI) reading for November, tracking inflation from the standpoint of goods-producing businesses and wholesalers. Also on Friday, the University of Michigan will release the preliminary December reading of its Consumer Sentiment Index (MCSI), providing a timely update on consumer confidence. Companies reporting earnings next week will include Costco, Broadcom, Oracle, AutoZone, Gamestop, and Lululemon Athletica, among others.

KEY TAKEAWAYS

Costco, Broadcom, Oracle, AutoZone, Gamestop, and Lululemon Athletica are among the companies reporting earnings next week
S&P Global and the Institute for Supply Management (ISM) will release PMI survey readings on Monday, gauging the strength of the U.S. manufacturing and service sectors
The Bureau of Labor Statistics (BLS) will release the November Producer Price Index (PPI) on Friday, gauging inflation from the standpoint of goods-producing businesses and wholesalers
The University of Michigan will issue the preliminary December reading of its Consumer Sentiment Index (MCSI), providing a timely update on consumer confidence

Producer Inflation Update

Next Friday, the Bureau of Labor Statistics (BLS) will issue its Producer Price Index (PPI) for November, tracking inflation from the standpoint of goods-producing businesses and wholesalers. Producer prices are projected to have risen 0.2% last month, at the same pace as the prior two months. On an annual basis, prices likely decelerated to a 7.2% annual growth rate, down significantly from 8% in October. Core producer prices, which exclude food and energy components, are projected to have risen 5.9% year-over-year, decelerating from a 6.7% gain in October that marked the slowest annual increase since July of 2021.

PPI inflation is often considered to be a bellwether for the trajectory of consumer inflation, as producer prices are often transferred over to consumers. A lower PPI inflation reading could indicate easing consumer prices over the coming months.

How Are Consumers Feeling?

Also on Friday, the University of Michigan will release the preliminary December reading of its Consumer Sentiment Index (MCSI), providing a timely update on consumer confidence. The index reading is projected to remain unchanged at 56.8, identical to the November reading. While consumer confidence as tracked by the MCSI has rebounded off a record low of 50 hit in June, the index remains near its all-time lows as high inflation, rising interest rates, and an economic slowdown impact U.S. consumers.