Weak U.S. data reinforces fears that the economy has peaked

The U.S. retail sales decline could be the beginning of markets correction and dollar decrease.

Asia and America show a sharp decline

The U.S. retail sales on Thursday seriously upset financial markets. Key indexes turned to decline, losing more than 1% after reports of a sudden and sharp sales drop in December. The dollar index stopped its growth, moving away from two-month highs.

Bad economic data in Asia started the process of taking profits after a stock's markets rally in the previous days. Chinese index China A50 declines more than 2.2%, losing almost all of its growth since the beginning of the week.

Crisis-era patterns for retail sales and jobless claims

Overall retail sales in the United States dropped by 1.2% in December; excluding auto and gasoline sales, the decline was 1.4%, which is the most dramatic decline since March 2009, when Americans faced the most severe economic downturn sinc moving away from two-month highs e the Great Depression.

The increase of jobless claims last week additionally made the situation worse. The number of Continuing jobless claims began to grow in September last year. In 2007, the turn towards the growth of both indicators coincided with the onset of major problems in the banking sector. The Fed then began to soften the policy. This postponed the recession, but not to help to avoid it completely and, hardly to make it milder it.

Earlier, we saw U.S. demand signs of weakness mainly from large companies reports, while consumer statistics remained surprisingly strong. Now, the U.S. indicators are moving to the market's focus. Today we should pay attention to the first consumer sentiment assessment in February and to the industrial production indicators. If they turn out to be weaker than expected, the markets may face a new wave of sales.

S&P 500 and USD correction threat

On the technical analysis side, the S&P 500 is near the 200-day moving average. Weak statistics can initiate sustained pressure in the area of support at 2630 against 2745 at the moment.

At this stage, for the dollar, the economic weakness also looks like bad news. As long as the Fed has room to soften policy, the USD is vulnerable to correction from current local highs.