Marketmind: Factory gates

A look at the day ahead in U.S. and global markets from Mike Dolan.

Wherever you think inflation is coming from, it’s not China – not yet at least.

With markets eagerly awaiting U.S. producer price readings on Friday, China said its factory-gate prices showed an annual fall for a second month in a row last month – the latest in stream of numbers revealing the impact of the government’s draconian COVID curbs, now being gradually lifted.

China’s producer prices fell 1.3% over the past year and consumer price inflation fell to just 1.6% in November – its slowest pace in eight months.

While that may already be in the rear view mirror for investors betting furiously on China’s economy reopening next year, it’s another episode in the “peak inflation” narrative that’s taking hold around the world.

With the critical U.S. consumer price inflation due on Tuesday, just before the Federal Reserve delivers its final interest rate rise of the year the following day, today’s readout is expected to show annual U.S. producer price inflation dropping to 7.2% from 8.0% in October. That would be some 4.5 percentage points below the year’s peak in March.

At least the numbers are expected to be reliable. Britain’s Office for National Statistics said on Friday it was cancelling next week’s producer price report after discovering further potential problems with the calculation of the series dogged by errors in diesel and food prices.

The disinflation theme more generally has been encouraged by the plunge in Brent crude oil prices this week to their lowest of the year below $76 per barrel, although a major leak lifted U.S. prices marginally on Friday.

Canada’s TC Energy shut its Keystone pipeline in the United States after more than 14,000 barrels of crude oil spilled into a creek in Kansas, making it one of the largest crude spills in the United States in nearly a decade.

Hopes for a China economic reboot, however, lifted London copper prices, which rose for a fourth consecutive session on Friday to hit their highest in more than five months.

U.S. stock futures were marginally higher ahead of Wall Street’s open after the S&P500 broke a 5-day losing streak on Thursday. U.S. Treasury yields were steady after rebounding from 3-month lows yesterday. The dollar was a touch lower.

Elsewhere, Britain’s finance ministry on Friday set out plans to overhaul the financial sector, including a review of rules to make bankers accountable for their decisions and easing capital requirements for smaller lenders.

Credit Suisse stock rose another 3% after it hailed on Thursday a “milestone” in its turnaround plan after raising 2.24 billion Swiss francs ($2.39 billion) as part of a 4 billion franc fund raising. Shareholders exercised 98.4% of their subscription rights, giving a boost to managers tasked with getting the Swiss bank back on track after the biggest crisis in its 166-year history.

Key developments that may provide direction to U.S. markets later on Friday:

* U.S. Nov producer prices, University of Michigan’s Dec consumer sentiment

* U.S. Federal Reserve issues quarterly financial accounts of the United States

* U.S. corporate earnings: Oracle Graphic: China’s negative PPI, slowing CPI growth in Nov, https://www.reuters.com/graphics/CHINA-ECONOMY/INFLATION/xmvjkkgmqpr/chart.png Graphic: Jobless claims, https://www.reuters.com/graphics/USA-STOCKS/klpyggemlpg/joblessclaims2.png Graphic: Heading the wrong direction? https://www.reuters.com/graphics/USA-FED/znvnbbdqyvl/chart.png

(By Mike Dolan, editing by Jane Merriman mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)