US Futures Are Trading Lower As Investors Pricing In The Prospects Of

The markets are finally responding to the concerns that perhaps the US economy could be fragile and it could not survive without the Fed support. All this triggered, after the Fridays payroll data, and gathered more momentum after the Fed’s Lockhart’s comment yesterday, when he said that he will still consider backing up further tapering, during the Fed’s next meeting. However, I do not think that this is causing the sell off for the European markets and for the US futures this morning. The major concern, perhaps for traders is that we have two new extremely hawkish people coming to join the Fed committee, and if Lockhart is backing up the further tapering argument, who is relatively not that hawkish at all, then the new members could be a lot more aggressive towards the winding down of the Fed support.

But, the fact that investors need to understand is, that we do have a strong economic growth, and economic data vows for it, with the exception of the unemployment data released last week, which many think that it is out of norm anyway, so the markets can survive without this quantitative easing steroid and the corporate earnings are also vouching for it. Yes, if however, we do see the economic data or the corporate earning falling on a consistent basis, then there is a concern for the economy.

Pullbacks are good for the bull economy, as this gives the chance for some to take profit off the table and bring others on board. We are expecting nearly 10% pull back for the broad market, given that we had a Stellar rally last year without any meaningful pull back.

The sell off, which we are experiencing this morning could catch further steam this afternoon when the new Fed officials will be making their speeches about the further stance of tapering in the future. In terms of economic data, we do have US core retail sales data due later this afternoon at 13:30 and the expectations are 0.4%. The Important thing to remember is that we had a profit warning from many US retailers at the end of the Q3, and the past two months have surprised the investors to the upside, therefore, given the aggressive sales promotion during the Christmas, we would expect a good number once again. However, if the number does come on the softer side it could trigger a heavy sell, as it will be fuelling the fire after the Friday’s job data.

Back in Europe, French president Hollande will be laying down his plan for the French economy which is still struggling to stay out of recession, but provided that the president’s alleged affair with young actress is more alarming, he may not be able to sway the focus away from his private life. French consumer price index data also came on the softer side this morning with the final reading of 0.3%, while the expectations were for 0.4%. UK’s latest inflation data is also due at 09:30 and the expectations are for 2.1% .The last month’s inflation number was at its four year low with the reading of 2.1% and this was mostly blamed to falling fruit and vegetable prices.

by Naeem Aslam