While the historic plunge in oil prices will be a dominant market story early this week, the focus will shift to the European Central Bank’s (ECB) meeting on Thursday. ECB head Mario Draghi has indicated the central bank is prepared to take steps to boost their struggling economy, but while action has been scarce, the rhetoric has been heating up. Oil will also play a factor in the ECB meeting. Normally, everyone would welcome a drop in oil prices, but Europe’s central bank, like the Federal Reserve and Bank of Japan, has been trying to generate inflation. The eurozone’s inflation rate is hovering near zero and the drop in oil prices could push the price index back into deflation. Long story short, expectations for a bolder ECB policy are rising.

In Switzerland, voters rejected an initiative that would have forced the Swiss National Bank to increase its gold holdings, which would have effectively ended its peg to the euro. The failure of the law is bullish for the U.S. dollar because if the ECB decides on a bolder course of action, the euro will devalue and the Swiss franc will fall with it. The Swiss franc has served as a safe haven currency in the past, but without it, investors will have few options besides U.S. dollars amid a global U.S. dollar rally.

In the United States, early indications are Black Friday retail sales will be disappointing, which caused retail stocks to fall in early Monday trading. That said, a number of analysts believe changing consumption patterns are to blame for the weak estimate as more consumers are shopping online and many sales start before Friday and continue throughout the holiday season. The result being that spending is spread out over several weeks, rather than over one or two days. With a broader pickup in consumer spending recently, concerns over sales this past weekend are likely an overreaction.

In addition to Black Friday results, a number of companies in the retail sector will announce earnings results this week, including American Eagle (AEO), Sears (SHLD), Abercrombie & Fitch (ANF), Aeropostale (ARO) and Dollar General (DG).

Global economic data will also be in the spotlight as November manufacturing is released. China’s PMI came out late Sunday night and it showed the manufacturing sector slowed again, although growth remains positive. European PMIs are out on Wednesday, as are producer prices. Any negative shift in the data will increase expectations for ECB action. U.S. manufacturing data will also be out this week.

This year, Black Friday may be best remembered for OPEC’s Thanksgiving Day sale on black gold, rather than holiday shopping. The oil cartel’s decision to keep oil production levels elevated sent prices tumbling on Thursday.

Heading into Thursday, most oil bears were expecting OPEC to make a token cut in production, but the decision to hold production levels shocked the market and sent West Texas Intermediate Crude below $70 a barrel. This move alone may cause a drop of approximately 15 cents at the gas pump over the coming weeks. Venezuela was desperate for production cuts because the socialist economy is on the verge of collapse as foreign reserves drain. The country recently received a $4 billion loan from China, but spent one-third of it in one week trying to defend the value of their currency. At the rate Venezuela is bleeding capital, its foreign currency reserves could be exhausted within three months.

Oil exporter Nigeria moved to devalue its currency earlier in the week. Norway and Canada saw their currencies weaken on Thursday, and Russia’s ruble again tumbled. The countries most at risk from the oil price decline are those with smaller and less developed economies where the energy sector dominates as a share of GDP. Venezuela faces an acute crisis because it has to repay U.S. dollar denominated bonds and it is fast running out of U.S. dollars. A default in Venezuela would affect global markets because the country makes up more than 5 percent of many emerging bond indexes.

This is all good news for the U.S. consumer a stronger U.S. dollar will push down the prices of other commodities along with the cost of imports. It will however, be problematic for the energy sector. Broad energy funds were down more than 6 percent in early trading on Friday. In contrast, transportation and retail sectors are set to benefit from falling energy prices amidst a growing economy. SPDR Retail (XRT) was up more than 1 percent in Friday trading, as was iShares Dow Jones U.S. Transportation (IYT).

This week the Bureau of Economic Analysis increased its estimate of third quarter GDP growth to 3.9 percent. The spike in growth was due to rising exports, lower imports and more fixed asset investment, even though the consumer has remained largely on the sidelines. The drop in oil prices could easily entice people to spend more during the holiday season and allow the economy to finally fire on all cylinders. A strong dollar, weak commodities and an improving U.S. economy were the conditions for the bull market rally in the late 1990s, which commenced after Republicans won control of Congress under a Democratic president. Similar factors are in place this year. That said, volatility is likely to return in 2015 as oil and commodity exporting countries run into trouble, but prospects look good for extended growth in the United States.

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A Seeking Alpha Contribution

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