Wednesday focus: U.S. stock sell-off, Goldman earnings and Eurozone data

And unexpectedly determined sell off by U.S. stock market bears overnight remains in focus on Wednesday.

U.S. sell-off sharp, but will it be short?

And unexpectedly determined sell off by U.S. stock market bears overnight remains in focus on Wednesday. Although stock index futures are once again a picture of calm, with both Nasdaq and mini S&P contracts up by two tenths of a percentage point and Dow futures up almost 0.5%, DJIA’s 400 point sell-off from highs late in Tuesday’s session implies bears may come back for another bite.  Triggers included, a pullback in oil prices that weighed on massive E&P stocks like Exxon, the continuing consolidation of copper prices that had a similar effect on miners, and ailing conglomerate GE announcing an $11bn tax dent that rekindled break-up talk. Selling was broad based though, with Nasdaq also falling sharply.

Signs of a break out in the VIX Volatility term structure and derivatives were also in the spotlight. Having jumped 18% however, the index faded back beneath  the 12 level that has been resistance for several months. That coincided with markets closing well off lows.

Goldman earnings seen falling

The main in event in the States will be Goldman Sachs’ Q4 earnings before market open. Like other bulge bracket rivals, it’s expected to see a seismic hit from adjustments related to the new tax legislations, in its case amounting to some $5bn. Unlike rivals though, including Citigroup, which reported on Tuesday, GS’s underlying earnings are still forecast to fall, with a 3.3% fall to $4.91 per share on an adjusted basis, though a loss of as much as $7.61 on a reported basis.

Europe stocks weak despite robust data

Europe had also closed in ambivalent fashion, though has failed to recoup much. The FTSE 100 slipped 0.3% at the time of writing, Germany’s DAX was down 0.2% and the Europe-wide STOXX 600 was also soft, though still close to a 2½-year high.  Sentiment over Europe’s economic indicators and the ongoing earnings season is generally good, ahead of Eurozone inflation readings at 10.00 GMT, albeit the annualised rate is forecast to stay at an anaemic 1.4% for December. The other stand out macroeconomic release on the slate is a U.S. Industrial Production index, coming at 14.15 GMT. Growth is forecast to have been 0.4% month-to-month in December, better than the 0.2% of November.

FTSE weighed by gold, pound still aloft

Weak gold and oil prices and continuing retreat of commodity metals account for the UK benchmark’s slippage, as well as a continuing string of disappointing trading updates from the likes of Burberry and Pearson. In currencies, attention remains fixated on the resilient pound. It continues to look overstretched on a daily basis but has weathered post 18-month high pullback, suggesting it could even revert back toward these. It was last at $1.3787, down just 5 pips.

Euro holds its ground

Against the euro, progress remains more turgid stuck with most dealing in a 15-20 pt. range around 88.50, underlining that much of the cable’s move is dollar related. The Eurozone’s clearer economic prospects relative to Britain are showing in the trade. The euro vs. dollar’s jumped to a $1.2322 high in Asia and speedy retreat did however hint that a near term top could be in place. The rate has touched a low of $1.2209 in Europe and last stood down 22 pips at $1.2240. Dollar travails were also evident against the yen, which continues to creep below dollar support at 111.18 yen, a 38% Fibonacci of the dollar’s June-December 2016 ascent. Unfettered yen progress could now eye 15th September’s kickback low at 109.54.

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