Investors Weigh Impact Of Strong Dollar and Weak Oil on Corporate Earnings, Fed Policy

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European stocks are trading slightly lower on Friday and U.S. stock futures are heading lower as well following yesterday’s U.S. retail sales report that were mostly in line with estimates, suggesting that the U.S. economy is on reasonably solid footing as the Federal Reserve prepares to hike interest rates in 2015.

The Commerce Department reported yesterday that retail sales increased 0.6 percent in July from June, slightly missing the estimate of 1.0 percent from briefing.com. but still up 1.6 percent above last year.

Total sales for the May 2015 through July 2015 period were up 2.3 percent from the same period a year ago.

The U.S. dollar is slightly lower today against the Euro but up against the Japanese Yen and the pound.

A strong U.S. dollar in 2015 coupled with a newly devalued Chinese Yuan and a euro under pressure from the ECB’s massive stimulus program is expected to negatively impact U.S. companies with international exposure during next corporate earning season.

That remains a big concern for investors looking ahead.

A strong dollar combined with lagging inflation due in part to plunging oil prices, which is currently at a 6 1/2 year low, could lead Fed Reserve Committee members to hold out until December 2015 before hiking rates, although some economists are still expecting a rate hike in September.

Fed Committee members will wait to digest more economic data before deciding about the timing of a rate hike.

At the end of this month, Fed members will receive another 2nd quarter GDP reading followed by August’s employment report in early September.

Later today PPI (Producer Price Index) will be released for July.

Today the euro is rising slightly against the dollar after Eurostat reported that Euro area inflation was 0.2 percent in July, matching the inflation level from June while euro area GDP rose 0.3 percent in the second quarter of 2015 compared to 0.4 percent in the first quarter of 2015.

Compared with the same quarter a year ago,  2nd quarter GDP grew 1.2 percent in the euro area.

-Johnathan Schweitzer

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