Geoffrey Smith 

Investing.com — The latest retail sales data will provide a new indication as to how worried the market is about the economic strength and rising interest rates. Fourth-quarter earnings season begins with bank earnings. Diplomatic talks to stop a new Russian invasion in Ukraine have failed. European energy prices have risen again as a result. This is what you should know about financial markets Friday 14 January.

1. The earnings season starts in earnest

With fourth-quarter updates of JPMorgan, (NYSE:), the U.S. earnings seasons kicks off. Wells Fargo (NYSE: Citigroup (NYSE:).

JPMorgan and Citi’s results are expected to continue due to continued strength in capital markets and dealmaking towards the end of this year. The economic recovery will also allow for further release of reserves from prior quarters. JPMorgan CEO Jamie Dimon earlier this week told clients he expects another year of solid economic growth in 2022, which will likely be reflected in the bank’s outlook.

Wall Street is facing a headwind because it’s already experienced a solid start to 2012, with rising long-term rate of interest supporting future lending margins. Wells Fargo shares are up 17%, Citigroup is up 12%, and JPM stock is up more than 6%.

2. Retail sales due; China trade flows start to cool

U.S. retail sales numbers are due for December at 8:30 AM ET and are expected to have edged down 0.1% in seasonally-adjusted terms on the month – a subdued end to a wild year.

The core retail sales will rise 0.2% in October, marking a fifth consecutive monthly increase – despite consumer signs that they have reduced the amount of savings they had last year. Experian’s results, released last night, spoke of a sharp rise in consumer inquiries for credit scores. 

Elsewhere overnight, there were signs of the massive boom in China’s merchandise trade cooling off at the end of the year. The year saw a slowing in export growth to 20%, and a slower rise in import growth from 30% to just below 20%. Even so, the country’s $676 billion trade surplus last year was a new record and a powerful illustration of how much consumer demand was created by government stimulus further west.

3. New rate fears hit technology, and stocks open slightly higher.

U.S. stocks are set to open modestly higher later, stabilizing after Thursday’s abrupt sell-off on fresh fears about a year of interest rate hikes.

Federal Reserve Governor Chris Waller told Bloomberg that three rate hikes for 2022 “is a good baseline”, a comment taken to imply a risk of more being necessary. Private-sector economists have also suggested that the Fed might stop buying bonds immediately when it meets this month.

They were at 6:20 am ET (11120 GMT) and had gained 106 points (0.3%), while 0.2% were unchanged. On Thursday, the tech-oriented Nasdaq also fell 2.5%.

At 1.75%, the benchmark 10-year Treasury yield was 3 basis points higher.

4. U.S.-Russian talks about Ukraine fall apart; the ruble drops, and Europe’s gasoline price rises

The combination of several factors pushed Europe’s wholesale energy prices up again, increasing the risk of an economic crisis in the months ahead.

Talks between Russia and America over Ukraine ended in a halt. Then, there was a massive cyberattack against the websites of Ukrainian governments. Fears of a Russian invasion causing new U.S. sanctions and stock market collapsed the rouble.

On the same day that fresh data showed below half of Europe’s storage, benchmark northwest European gas futures rose 13% to $96 per megawatt-hour (or $1110/MWh), new data also revealed that European storage had dropped by 50% six weeks before normal. This raises the possibility of rationing this winter in the event that the colder weather becomes unseasonably mild.

Electricity futures rose again, as Electricite de France reduced its forecast output due to unplanned reactor failures. EDF (PA) shares dropped 23% following the announcement by the government that it would sell more power at steep discounts to the market to alleviate the consumer pain.

5. China tensions and China trade drive oil prices up; U.S. rig count viewed

Overnight, crude oil prices rose to new two-month highs following the release of Chinese trade data. This was against the backdrop of lingering concerns about the capacity to the global oil industry to produce the oil that the recovering world needs this year.

Markets at 6:30 am ET showed a 1.1% increase in futures to $83.00/barrel, and a 1.2% rise to $85.44/barrel

Baker Hughes’ drilling rig count and the CFTC’s positioning data round off the week later.