Lower Retail Sales Pressure Stock Indexes

STOCK INDEX FUTURES

Stock index futures are lower following hawkish comments from several Federal Reserve officials.  In addition, there were some disappointing corporate earnings reports today.

Also, retail sales in December declined 1.9% when unchanged was expected.

December Industrial production fell 0.1% when an increase of 0.3% was anticipated and December capacity utilization was 76.5%  which compares to the predicted 77.0% .

The 9:00 central time January consumer sentiment index is estimated to be 70.4.

The 9:00 November business inventories report is expected to show a 1.1% increase.

The longer-term fundamentals remain supportive despite the more hawkish Federal Reserve.

CURRENCY FUTURES

After declining for three days the U.S. dollar index is a little higher.

On Wednesday the U.S. dollar fell below a two-month congestion pattern.  Some analysts are thinking recent weakness in the U.S. dollar suggests the Federal Open Market Committee may later this year back off from its recently increased hawkishness.

The euro currency is lower after a report showed  German gross domestic product in the fourth quarter of 2021 is estimated to have contracted to between -0.5% to -1.0%, compared to the third quarter, according to the federal statistics agency.

The British pound remains near a three-month high against the U.S dollar, supported by November’s strong gross domestic product report and expectations that the Bank of England will be raising interest rates in February.

A hawkish Bank of England will likely continue to support the British pound. Financial futures markets have priced in up to four Bank of England interest rate hikes in 2022.

Flight to quality buying is coming into the Japanese yen, after rebounding further from a five-year low hit on January 4. The Bank of Japan is widely expected to maintain its ultra-loose monetary policy. The next Bank of Japan policy meeting is scheduled for January 18.

An accommodative Bank of Japan will likely result in long-term pressure on the yen.

INTEREST RATE MARKET FUTURES   

Philadelphia Federal Reserve Bank President Patrick Harker said Thursday he sees three or four interest rate hikes this year.

Financial futures markets are predicting the Federal Open Market Committee will hike its fed funds rate at the March 26 policy meeting.

Federal Reserve speakers today are Patrick Harker at 9:00 and John Williams at 10:00.

Some analysts believe that if the rate of growth in the U.S. economy slows, it may be difficult for the Federal Reserve to maintain its recently ramped-up hawkish policy stance.