European stocks were trading in positive territory on Friday, with investor sentiment helped by some better news from China, where a report showed manufacturers trimming prices by 1.3%.
Gains were capped, however, as traders waited to see if fresh U.S. data on Friday would confirm inflationary pressures are easing.
The U.S. producer prices index for November is due for release at 1330 GMT. The year-over-year level is expected by economists to fall from 8% in October to 7.2%.
A slower pace of factory gate price rises should help reduce consumer goods inflation and allow the Federal Reserve to be less aggressive in raising interest rates. The November U.S. consumer-price index will be published on Tuesday.
European Central Bank
The current market pricing of the ECB's terminal rate a little below 3%, isn't especially aggressive, given that inflation will likely remain far above its 2% target through much of next year, Barclays said.
However, inflation risks are clearly starting to turn more balanced given recent downside surprises on both sides of the Atlantic, Barclays added.
A 50-basis-point interest-rate rise by the ECB on Dec. 15 is likely, "but attempts to counterbalance this with tilts to the hawkish side elsewhere" is a risk for markets.
November's slight year-on-year decline in Norwegian core inflation should be comforting for Norges Bank and--combined with the bearish Regional Network Report--it suggests the central bank will stick to its cautious approach, SEB said.
November year-on-year core inflation dropped to 5.7% from 5.9%, while the market and WSJ consensus had been for a reading of 6%, though Norges Bank had forecast 5%.
"Inflation is thus running 0.7 percentage points above the bank's trajectory despite today's downside surprise, implying that the bank will be forced to lift the short-term inflation forecast in its December monetary policy report."
SEB expects the Norges Bank to raise rates by 25 basis points next Thursday and sees downside risks to its rate path.
Stock futures edged higher ahead of supplier-price data.
"Markets remain in absolute inflation data dependence mode...even the typically nonmarket reactive PPI gauge still warrants significant attention, especially with market-based inflation gauges falling primarily due to sinking oil prices," SPI Asset Management said.
The yield on the benchmark 10-year Treasury note fell to 3.480%, from 3.492%. The yield on the two-year note, which is more sensitive to near-term interest-rate expectations, fell to 4.284%.
U.S. data scheduled for later could further pressure the dollar, UniCredit Research said.
The PPI may show a further easing in price pressures in November, which could fuel expectations for the Fed to slow the pace of interest rate rises on Dec. 14 and prompt "another EUR/USD assault above this month's high of 1.0594 and then on June highs above 1.06," UniCredit said.
"A relatively flat University of Michigan sentiment reading is not expected to inspire the USD either."
With the dollar battling seasonal weakness, the euro has managed to edge higher, although its gains are likely to be limited, ING said.
"Our base case is still that EUR/USD will struggle to trade sustainably above 1.0600, and is mostly facing downside risks into year-end as the dollar could regain some ground on global risk uncertainty and rebounding energy prices," ING said, noting the dollar's safe haven status.
Sterling faces a hit from the Bank of England's latest inflation attitude survey on Friday as it could show inflation expectations remain high and confirm the public's dissatisfaction with the central bank's passive approach to raising interest rates, Commerzbank said.
Inflation expectations remain well above the BOE's 2% target over a two-year horizon, which makes it difficult for the central bank in taming inflation and GBPunderlines the risk of increased volatility in sterling," Commerzbank said.
The "depressed" economic outlook, cautious monetary policy and continued high inflation continue to "principally put pressure on sterling."
Read Pound May be Little Moved by BOE Decision, Struggle to Rise in 2023
The recent rally in rates markets looks exaggerated for Societe Generale, which sees no fundamental factors driving it.
"Inflation remains sticky, labor markets and growth are resilient, and central banks still have a ways to go before they end their tightening cycle."
It expected both the Fed and the European Central Bank to raise interest rates by 50 basis points next week, adding that more rate rises will be needed.
The room for further declines in eurozone government bond yields looks limited in the coming months, SEB said, which expects the 10-year German Bund yield to climb back above 2% in the first quarter of 2023.
"With the net supply adjusted for the ECB's purchases increasing substantially in 2023, we think the case for a continued decline in euro area long yields in the coming two to three months is not particularly strong, especially given the already depressed yield levels."
Societe Generale said it favors Portuguese government bonds versus Spanish peers, as markets refocus on fundamentals and relative performance.
One of its recent trade recommendations has been to buy 10-year Portuguese bonds versus 10-year Spanish peers, and Portuguese bonds have been performing strongly, it said.
"But the main reason to favour it is the outlook for fiscal metrics in coming quarters, as well as improved relative liquidity and higher flexibility from smaller issuers in what promises to be a heavy issuance year without the European Central Bank," Societe Generale said.
Oil futures wavered, with prices having suffered sharp falls this week, as higher inventories pressured demand.
"The demand side remains broadly bearish, amid a global economic slowdown, heightened recession risks in the EU and the U.S. and lingering concerns over growth in China," Fitch said.
It has forecast Brent to average $95 a barrel in 2023, "spurred by strong, albeit slowing, consumption growth and constraints on the supply side," but said the "balance of risk to the forecast is now skewed squarely to the downside."
Base metals made solid gains while gold edged higher, with positive sentiment around China providing support.
"Metals have broadly edged higher since November with optimism toward mainland Chinese growth and the likely peaking of the dollar," Fitch said.
Further optimism has come from investment within China's property sector and also an easing of Covid-19 measures, Fitch added. However, it said the slowdown in construction activity in mainland China, weakening housing markets across developed markets and worsening financial conditions has kept prices in check.
More Metals Insight
Morgan Stanley has highlighted aluminum, iron ore and metallurgical coal as their top commodities picks in the China reopening trade, and said it remained positive on gold, too.
It cited tight supply, hydropower shortage and a demand pickup in China as reasons to bet on aluminum. For iron ore, it expected seasonally tight first-half supply and a backlog of infrastructure projects.
Lithium spot-market availability is very tight, and even some contracted volumes are failing to be delivered, Benchmark Mineral Intelligence said.
"Looking ahead, a lot of the supply set to [come to] market has already been signed off under offtake agreement, so it looks like spot-market availability will remain quite limited. However, high prices will incentivize producers to keep some material back to sell on a spot basis...so this could allow for some more spot-market liquidity when any new projects come to market."
DOW JONES NEWSPLUS
TotalEnergies to Book $3.7 Bln Impairment on Novatek Stake, Withdraws Directors
TotalEnergies SE will book an impairment of around $3.7 billion in the fourth quarter as it will no longer equity account for its stake in Russian natural gas producer Novatek.
The French major said on Friday that it has also decided to withdraw its representatives from Novatek's board with immediate effect as they were no longer in a position to fully carry out their duties.
Thales's Transport-Systems Sale to Hitachi Likely Delayed Amid UK Antitrust Concerns
A sale of Thales SA's transportation-systems business to Japan's Hitachi Ltd. is likely to be delayed by months until the second half of next year amid antitrust concerns in the U.K, the French aerospace-and-defense group said Friday.
U.K. regulator the Competition & Markets Authority said the tie-up would remove a credible competitor for signaling business in the country, lessening competition and driving up fares for passengers. The CMA said it will open a phase 2 probe into the deal unless its concerns are addressed by Hitachi Rail, a subsidiary of the Tokyo-based conglomerate.
Anglo American Sees 2022 Production Down 3%
Anglo American PLC said Friday that 2022 production was down by around 3% as the Quellaveco copper ramp-up and strong diamond production was offset by ore grades in Chile and lower production from Kumba and platinum group metals.
Unit costs for the year were up around 16% and it sees capex of around $5.7 billion after supply chain disruptions and foreign exchange.
Associated British Foods Backs FY 2023 View Despite Cost Inflation
Associated British Foods PLC said Friday that it backed its full-year outlook, but that it was mindful of further significant input cost inflation.
The British conglomerate said its clothes store Primark has been performing encouragingly and that it is on track to open 27 new stores in the year.
Berkeley Group 1H Profit Fell; Backs FY 2023 Guidance
Berkeley Group Holdings PLC said Friday that pretax profit and revenue fell for the first half of fiscal 2023, and backed its full-year expectations.
(MORE TO FOLLOW) Dow Jones Newswires
December 09, 2022 05:57 ET (10:57 GMT)Copyright (c) 2022 Dow Jones & Company, Inc.