Retail sales, ECB, BoE hikes; Musk dumps more Tesla - what's moving markets

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Retail sales, ECB, BoE hikes; Musk dumps more Tesla - what's moving markets

By Geoffrey Smith -- Global markets are struggling to accept the Federal Reserve's warning that it will raise interest rates above 5% next year. The dollar is nonetheless higher and stocks are lower as the European Central Bank and Bank of England both prepare to follow suit in tightening policy further. Retail sales data for November and two regional Fed surveys at 08:30 may show who's more likely to be right. Elon Musk unloads another $3.6 billion in Tesla stock, pushing it to a new two-year low. Chinese economic data continue to undershoot, but oil ekes out a modest gain. Here's what you need to know in financial markets on Thursday, 15th December.

1. Retail sales, Fed surveys to test Powell-Market disconnect

Global markets weakened overnight and the dollar strengthened after the Federal Reserve indicated it would raise interest rates above 5% next year to tame inflation .

Short-term interest rate futures still refuse to take such projections at face value, implying a peak below 5% and a first rate cut next year – the implication being that markets expect both inflation and the economy to weaken more than the Fed does.

That’s a dissonance that will have to be resolved one way or the other in the coming weeks, as economic data show who is more likely to be right. The post-Fed data calendar kicks off with November's retail sales data, weekly jobless claims and the Philadelphia and New York Fed business surveys at 08:30 ET (13:30 GMT), followed by industrial production numbers at 09:15 ET.

2. Rate baton passes to Europe

The central bank action switches to Europe on Thursday, with both the European Central Bank and the Bank of England expected to follow the Fed in tightening monetary policy a little less aggressively than before.

Hikes of 50 basis points are expected from both, although there is greater uncertainty around the BoE’s decision, given the worsening economic outlook in the U.K. That would take the ECB’s deposit rate to 2.5% and the BoE’s Bank rate to 3.5%.

The Swiss National Bank already followed the Fed with a 50 bp hike and a modest upgrade to its inflation forecasts, while Norway’s central bank raised its key rate by 25 basis points.

Sterling has risen over 3% against the dollar in the last month as markets have bet on the Fed making a dovish pivot next year, while the euro has risen over 2%. Both currencies gave up some of those gains overnight in response to the Fed’s latest guidance.

3. Stocks set to extend losses at open on rates reality check; Musk offloads more Tesla stock

U.S. stock markets are set to open lower later, extending losses from Wednesday in response to the Fed’s latest ‘dot-plot’, which showed an overwhelming majority of policymakers in favor of raising rates above 5% next year.

By 06:05 ET, Dow Jones futures were down 260 points or 0.8%, while S&P 500 futures were down 1.1%, and Nasdaq 100 futures were down 1.4%. The main cash indices had lost between 0.4% and 0.8% on Wednesday.

Stocks likely to be in focus later include Tesla (NASDAQ: TSLA ), where filings showed that Elon Musk sold another $3.6B in stock in recent days. It’s the third such sale since Musk said there would be “no further sales” to raise money for the acquisition of Twitter. Musk’s sales have been a cardinal factor behind Tesla’s decline of 63% from its peak in November last year.

Also in focus will be Goldman Sachs (NYSE: GS ), amid reports that it will cut its bonus pool by as much as half this year, reflecting the problems it has faced with higher volatility and lower capital market activity.

Adobe (NASDAQ: ADBE ) reports earnings after the bell.

4. China’s big data dump disappoints

China’s economy continues to undershoot expectations.

Data released overnight showed industrial production , retail sales , and fixed asset investment , all falling well short of consensus forecasts in November, illustrating why the Communist Party has abandoned its Zero-COVID policy with such speed in the last couple of weeks.

Output growth slowed to only 2.2% on the year, the weakest in six months, while retail sales were down 5.9% and fixed asset investment grew only 5.3%, down from 5.8% in October. The numbers keep China on course to fall well short of its official growth target this year. The Wall Street Journal reported that top planners will aim for growth of 5% next year.

The offshore yuan weakened some 0.4%, while Chinese equity indices, on a tear, since the government started to loosen COVID restrictions, fell moderately.

5. Oil ekes out modest gain despite weak Chinese data, U.S. inventory build

Crude oil prices hit their highest in over a week, shrugging off both the weak Chinese data and the biggest weekly rise in U.S. crude stocks in 21 months.

The market is focusing instead on the prospects of the market tightening again in the new year, as the western sanctions regime on Russia makes it harder for the world’s second largest exporter to sustain production. The International Energy Agency has predicted another 1.7M barrel-a-day rise in demand output next year, at a time when spare capacity is already running very low among major producers outside the U.S.

By 06:30 ET, U.S. crude futures were up 0.1% at $77.35 a barrel, while Brent futures were up 0.1% at $82.76 a barrel.

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