Daily Market Outlook, December 13, 2022

US Inflation Data Eyed After An M&A Monday Rebound in Risk Appetite
A flurry of end of year Merger & Acquisition activity provided a bid to Wall Street, with over $70 billion worth of deals announced yesterday, headlining the activity was Amgen who announced a deal to $26 billion buy Horizon Therapeutics, Thoma Bravo will acquire Coupa Software for $8 billion. Microsoft agreed to purchase a 4% stake in the London Stock Exchange valued at $2.8 billion. The M&A deal news was coupled with upbeat earnings from Oracle Corp after the bell in New York beating on EPS & revenues, leading the benchmark SP500 to post a gain of just shy of 1.5%, reversing Fridays post PPI losses, the positive impetus from Wall Street was carried over into Asian equities overnight, however, US CPI data released later today has led to some caution as London trading opens.
This morning, UK employment data showed a further sign that the employment situation in the UK continues to cool, but in general overall conditions remain tight, as the employment rate nudged up to 3.7% for October, job vacancies continued to decline, but remain elevated from a historical perspective, private sector wage growth continued to show modest gains at 6.1%. The BoE will release its Financial Stability Report this morning, this may garner some interest given the recent volatility in the sterling markets. In the Eurozone, investors will monitor the German ZEW survey which is expected to show continued improvement in economic sentiment in the region, although market watchers expect confidence levels to remain fragile at -25, while the current situation is expected to improve from -64.5 to -52. In the US CPI is the most important scheduled macro event left of the year (FOMC on Wednesday is the 2nd). Last month’s Year over Year headline print came in soft at 7.7% (vs 7.8% expected and 8.2% prior). Investors were short into the event and S&P recorded its sharpest rally since April of 2020. Consensus on the Street is for a 7.3% headline figure versus the prior 7.7%, with core inflation (ex food and energy) expected to decline from 6.3% to 6.2% The data will likely set the tone for markets ahead of tomorrow’s Fed monetary policy decision, with the inflation outlook determining how much further interest rates could still have to rise in 2023.
Markets-wise it's all about the reaction to today's CPI data, given last month's outsize gain on the SP500 of over 5.5%, markets are poised for reactions around a print of sub 7%, which could see another positive response of 3%+ on the upside, while a print above 7.3% could be taken negatively seeing a 2-3% decline in the benchmark index, while any number above 7.7% would likely see investors liquidate more heavily with losses likely to exceed 4% on the downside.