Investors Look Ahead to ECB Meeting, PPI Data
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Welcome to the Schwab Market Update podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Colette O'Clare, and here is Schwab's early look at the markets for Thursday, December 12th.

Central banks and inflation data dominate after Wednesday's U.S. market surge. Rising hopes for a Federal Reserve rate cut helped stocks yesterday, but Treasury yields rebounded from early weakness and may remain under scrutiny as investors await more price data today.

The European Central Bank is expected to lower rates by 25 basis points later this morning, following the Bank of Canada's 50 basis point trim yesterday. This precedes next week's Federal Reserve meeting, where investors see nearly 100% odds of a 25 basis point cut, despite recent solid U.S. data.

The latest data was yesterday's November Consumer Price Index, which met analysts' expectations but showed no sign of progress toward the Fed's 2% goal. Core CPI, which excludes food and energy, has been stuck at 0.3% monthly growth the last four reports.

The next economic reading is this morning's November Producer Price Index, which tracks wholesale prices. Consensus is 0.2% for core monthly PPI growth, down from 0.3% in October. PPI has generally descended faster than CPI, which could bode well for CPI down the road because wholesale prices often trickle down to the consumer level.

Yesterday's CPI showed milder housing inflation growth, a welcome development. The monthly change in owner's equivalent rent, a CPI housing measure, was just 0.23%, the lowest since January 2021. Still, gains in food, natural gas, and insurance prices kept CPI sticky.

The numbers were good enough that it should keep the Fed on track for a 25-basis point cut next week, but they also show that the fight against inflation will continue into the Trump administration, where inflation may come under more pressure from tariffs, deportation, and other policy decisions, said Michael Townsend, managing director, legislative and regulatory affairs at Schwab.

In earnings action, software firm Adobe reported late yesterday and beat analysts' expectations, but shares slid in pre-market trading as the company's guidance on digital media fell short of fact-set estimates. Semiconductor giant Broadcom reports after today's close, and investors will closely watch guidance after weakness in the outlook last time.

Broadcom competes for second place in AI chip market share behind NVIDIA, but like many chip companies, has seen slower growth in non-AI applications. Another earnings report on tap after the close is Costco, reporting for the first time since it raised membership fees in September. The potential impact from a shorter-than-usual holiday shopping season is another potential focus point.

Yesterday saw tech emerge from its two-day hibernation after the inline CPI raised hopes of a rate cut. Semiconductors led the charge as the Philadelphia Semiconductor Index rose 3% on strength in Broadcom, Micron, and NVIDIA that also helped drive the Nasdaq Composite above 20,000 for the first time.

Additionally, Tesla hit a new all-time intraday high. Shares of Tesla have surged since the election, on ideas the company may be better situated than competitors to deal with any loss of U.S. government EV support under the new administration. Yields rose Wednesday despite strong demand for a U.S. 10-year Treasury note auction.

The S&P 500 rose 49.28 points or 0.82% Wednesday to 6,084.19. The Dow Jones Industrial Average fell 99.27 points or 0.22% to 44,148.56 and is down five straight sessions. And the Nasdaq added 3%.

347.65 points or 1.77% to 20,034.89. This has been the Schwab Market Update podcast.

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