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Market Insider: Goldman and Retail Sales

There's a lot riding on Goldman Sachs' earnings report Tuesday.

Already high expectations for a blockbuster quarter moved up a notch Monday when usually bearish banking analyst Meredith Whitney put a buy on the stockand said the firm's earnings will show a huge upside surprise. Whitney sees Goldman reporting second quarter profits of $4.65 per share, way above the street's estimate of $3.48 per share. Traders say the whisper numbers are even higher.

From 'Fast Money':

Whitney's comment helped trigger a more than 2 percent stock market rally and a 6.5 percent gain in the S&P financial sector. In their best performance since June 1, the Dow was up 185 to 8331, while the S&P 500 gained nearly 22 to 901.

"It's no secret Goldman is going to blow out their numbers. They've already kind of previewed that for us. It's no secret the yield curve is a net positive for the banks right now," said Art Hogan of Jefferies. Major banks follow Goldman's report, as J.P. Morgan, Citigroup and Bank of America also report this week. "... We're really in the sweet spot in the banking business if you ignore things that are on the balance sheet."

Hogan said Whitney's call may have taken some of the steam out of Goldman's anticipated after-earnings rally. Goldman also stands to outshine the rest of the banking group so gains in the group may also be more subdued than they might have otherwise been without Goldman's report. "Goldman always sets the bar too high for everyone else ... It's hard to match," he said.

The dollar declined about 0.3 percent against the euro Monday to $1.3996, while it rose 0.6 percent against the yen. Whitney's comments pushed stocks higher, which spurred the move lower in the dollar as investors moved to riskier currencies. The Treasury market traded lower. The yield on the 10-year rose to 3.348 percent.

Rick Klingman, managing director of Treasury trading at BNP Paribas, said the bond market consolidated in quiet trading Monday. For Tuesday, Goldman earnings are important to the Treasury market, but the focus will be more heavily on retail sales, expected at 8:30 a.m. June retail sales are expected to rise 0.4 percent. The market is also looking ahead to Wednesday's release of minutes from the Fed's last meeting and its new economic forecast.

"We took on four auctions last week and we're still above water in all those auctions. We're in pretty good shape," said Klingman.

Brown Brothers currency strategist Win Thin said the dollar's focus is also on the retail sales number. "Tomorrow is a big day with that retail sales numbers — and we'll see whether we refute that really weak jobs number or we build on it," said Thin, noting the data is the first number since that July 2 jobs report.

Boris Schlossberg of GFT Forex said Wednesday's reports from China on second quarter GDP and retail sales could also be big for the markets.

"I don't think the market is really thinking about this. If the numbers surprise to the downside, they could have much more impact than people think. The whole China recovery story is linked to the Australia, New Zealand rebound story," he said.

Some commodities, like oil, natural gas and aluminum, moved lower Monday. Wheat, however, was sharply higher, up more than 4 percent, on a seasonal move related to winter wheat harvesting.

But Joe Victor, vice president of Allendale Inc, said he was skeptical of wheat's move. "In order for this trader to be convinced that a bottom has been set, we have to see some really big demand ... We have to start to see major demand showing up form the likes of Egypt, Nigeria and Mexico," said Victor.

"The one that's going to get us excited is Egypt coming in here with a major purchase," he said. But there's no sign of that right now, with wheat stocks at seven year highs. The current stock is 706 million bushels, the highest level since 2001's 777 million, he said.

What to Watch

Other data expected Tuesday is the producer price index at 8:30 a.m. and the NFIB small business sentiment survey, released at 7:30 a.m. Business inventories are reported at 10 a.m.

There is also plenty of earnings news, including some spill over from Monday. Dell, for instance, holds an analyst day Tuesday and it revealed Monday that it expects a slight sequential increase in revenue for the quarter ending July 31. However, it expects margins to contract modestly due to higher component costs and an unfavorable product mix.

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CSX's after-the-bell earnings topped expectations. The third largest U.S. railroad said it was helped by cost cuts which offset a drop in freight volume. CSX CEO Michael Ward said the company sees some markets bottoming

Johnson and Johnson also reports before the bell. Intel and Yum Brands report after the bell Tuesday.

CIT moved higher in late trading, after the Wall Street Journal reported the lender was in advanced talks with the government about potential aid.

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.