US open: Stocks drop as retail sales slump, earnings season kicks off

US futures

Dow futures -0.83% at 35824

S&P futures -0.92% at 4619

Nasdaq futures +-1.03% at 15344

In Europe

FTSE -0.55% at 7524

Dax -0.98% at 15853

Euro Stoxx -1.25% at 4262

Learn more about trading indices

Banks report mixed earnings

US stocks are extending losses for a second straight session as retail sales unexpectedly slump and attention turns to earnings. Concerns over earnings, add to worries that the US economy won’t withstand the Fed’s aggressive path to tightening monetary policy.

High growth tech stocks were the biggest losers on Thursday after Fed officials signaled that they were ready to combat high inflation head on in 2022. The Nasdaq is set to underperform again today with the Nasdaq futures falling more steeply than the Dow Jones or S&P 500.

On the data front US retail sales unexpectedly tumbled -1.9% MoM in December, well below 0% expected. Surging Omicron cases in December kept shoppers at home.

Looking ahead, Michigan consumer confidence is due later in the session. Expectations are for sentiment to tick slightly lower to 70 in January down from 70.6.

In corporate news:

Attention will now turn to earnings as banks kick off the Q4 earnings season. JP Morgan and Citigroup are falling pre-market after reporting disappointing numbers. Wells Fargo, however, is on the rise after higher-than-expected revenue and earnings

Away from the banks investors will be focusing on how companies have performed amid surging inflation and pandemic restrictions.

Where next for the Dow Jones?

The Dow Jones is extending losses from resistance at 36500. The price is testing the 50 sma and the multi-week rising trend line at 35800. A fall below here and 35630 could see sellers gain traction towards 34950 the key 200 sma support. It would take a move above 36500 for the dominate near term trend to change to bullish and buyers target 36955 the all time high.

FX markets USD steadies, GBP rises on GDP beat

The USD is steadying after booking steep losses across the week. The greenback has picked up off session lows but continues to hover around 2-month lows. With the Fed set to hike rates 3 to 4 times across the year, investors are still selling out of the USD suggesting that they are unsure whether the US economy can withstand such aggressive tightening.

GBP/USD trades higher after the UK economy finally returns to its pre-pandemic size. UK GDP rose 0.9% MoM in December, ahead of 0.4% forecast. This was also firmly up from 0.1% in October. Omicron is expected to dent growth in December, but the impact is expected to be short-lived and contained leaving the BoE to hike rates at the next meeting.

GBP/USD +0.02% at 1.3709

EUR/USD -0.04% at 1.1448

Oil set for over 3.5% weekly gain

Oil prices are showing resilience despite China agreeing with the US to release oil reserves from its strategic stockpiles, around the beginning of next month. The move is party of a plan coordinated by the US at the end of last year with other oil consumers in a bid to lower oil prices.

The amount release by China will depend on the price of oil at the time. Should oil prices be above $85 China will release a larger amount than if the price is around $75.

Separately data revealed that China’s annual crude oil imports averaged 10.26 million barrels per day, this was down 5.4% compared to the previous year.

The Baker Hughes rig count is due to be release later today.

WTI crude trades +0.7% at $82.11

Brent trades +0.8% at $84.70

Looking ahead

14:15 Industrial production

15:00 Michigan confidence

16:00 Fed Williams speaks

18:00 Baker Hughes rig count

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