Stocks hit again in rollercoaster week

European markets are set to follow Wall Street lower on Friday, despite stronger than expected UK economic growth. The dollar is languishing near 2-month lows with oil set for a strong week. Whilst European bourses managed to finish on higher ground yesterday, that wasn’t the case for Wall Street. An unexpected rise in initial jobless claims, as COVID cases surged stateside, saw the number of Americans signing up for unemployment benefits for the first time rise to a level not seen since mid-November. US tech stocks were the biggest losers with the Nasdaq closing 2.5% lower.

Coming up

● US indices suffer, dollar drops after shock jump in jobless claims
● UK GDP grows 0.9% MoM in November
● China trade data out overnight
● US banks kick off earnings season
● Big week for oil

China data

Overnight, disappointing trade data from China has added to the risk-off tone in the markets, weighing on demand for riskier assets such as stocks. China’s exports rose 20.9% YoY in December,
down from 22% in November but slightly above the 20.9% forecast. A result of the immense demand for lateral flow tests globally!?

However, imports were considerably weaker than forecast, with Beijing’s insistence of a zero-COVID policy negatively impacting the world’s second largest economy. Imports rose 19.5% YoY in December, down from 31.7% in November and significantly short of the 26.3% forecast.

UK GDP

Thanks to weakness in the US & Asia overnight, Europe is pointing to a softer start. The FTSE 100 looks set to fall less than its European peers, after UK GDP data brought a ray of hope. The UK
economy grew at a faster pace than expected in November at 0.9%, ahead of the 0.4% forecast. It’s a welcome relief from the sluggish 0.1% growth recorded in October. A faster pace of expansion in construction and services helped boost growth. The upbeat data bodes well for Q4 growth and is lifting the pound, keeping GBP/USD above the key $1.37 level, whilst EUR/GBP has fallen from session highs.

US bank earnings

Looking ahead, US futures are pointing to a mildly positive start with banks set to kick off earnings season. The likes of JP Morgan, Citigroup and Wells Fargo are all due to report Q4 earnings before
the opening bell. US banks have had a stellar start to 2022. The outperformance by the sector could be in anticipation of strong Q4 earnings. Or it could be down to the prospect of a higher interest rate environment this year, as the Fed prepares to hike rates 3 if not 4 times in 2022. However, after big gains (in the region of 11% for Citigroup) so far in 2022, expectations will be riding high.
It is worth keeping in mind that JP Morgan Chase is considered a ‘market bellwether’ so its performance can influence broader risk sentiment.

US retail sales

This week has been busy for the US economic calendar and that is set to continue today with the release of retail sales. Expectations are for sales to remain flat in December, after 0.3% growth in November. Flat growth in retail sales could be attributed to rising Omicron cases in the US, with shoppers staying at home. Rising prices could also start influencing consumer behaviour as inflation reached 7% in the final month of 2022.

Oil price

Brent crude oil and US oil prices are pushing mildly higher. Oil is on track to book gains of 4.25% across the week, marking its fourth straight weekly rise. Concerns that OPEC+ cannot reach upwardly revised output quotas, in addition to falling crude stockpiles, a weaker US dollar and easing concerns surrounding Omicron have contributed to a strong week for oil prices.