US Open Note – Ugly retail sales data question Fed tightening; dollar plummets to fresh lows

Stocks to close the week in the red; banking earnings beat estimates

Fed policymakers keep throwing cold water on stock markets, highlighting that a faster pace of higher interest rates will be required to cool inflation from March onwards, as persisting pandemic-led supply bottlenecks might create additional price pressures in the coming months.

The Fed’s No.2 official Lael Brainard and the Chicago Fed President Charles Evans were the last on the call on Thursday, with tech stocks driving the Nasdaq 100 down by 2.5%. The S&P 500 could not overcome the 4,200 ceiling, moving rapidly lower as well, while the Dow Jones managed to survive with softer injuries once again.

The bearish mood could extend to Friday’s session according to US futures even if Q4 banking earnings from JPMorgan beat analysts’ expectations on softer credit losses and loan growth, marking a profitable end to the year. Citigroup reported a 26% drop in profits but could still perform better than analysts estimated.

Europe continues to trade in the red, with technology and utility stocks printing the largest declines in the pan-European STOXX 600.

US retail sales miss forecasts; dollar sell-off continues

Turning to the FX markets, the hawkish talk from Fed speakers was strangely a sell-the fact event for the dollar as investors shift funds to bond markets, pressing Treasury yields lower. The dollar index is facing its largest weekly loss since early November, but only a sustainable drop below 94.50, which is currently under examination, would ruin its medium-term upward pattern.

Disappointing US retail sales data further weighed on the reserve currency, raising demand for safe havens instead as the combination of a weakening consumption, high inflation, and a tighter monetary policy could be a toxic cocktail for the economy. Investors were hoping for a mild slowdown during the Christmas month of December, but sales tendencies returned sharply to the contraction area in the face of omicron fears, marking a monthly decline of 1.9%. Excluding volatile items such as automobiles, the downfall was even sharper at 2.3%.

Dollar/yen tumbled to an almost one-month low of 113.50 in the aftermath. Euro /yen and pound/yen showed a similar response, reflecting rising caution among investors.

Euro/dollar could not capitalize on the data, remaining trapped around the 1.1450 barrier. Pound/dollar was also muted below the 1.3740 resistance and the 200-day simple moving average despite the positive surprise in GDP growth figures earlier today.

In commodities, gold remained a forgotten safe asset, barely moving around $1,826/ounce. Oil futures inched to an almost three-month high of $83.30/barrel before pulling slightly back.

Next on the calendar

University of Michigan’s consumer survey will feature on the US calendar later in the day. The Philadelphia and New York Fed presidents will conclude the central bank’s communication today before the Fed speakers' blackout period begins tomorrow.

China is scheduled to release its GDP growth stats on Monday at 02:00 GMT.

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