US open Stocks fall, retailers are hit by rising costs

US futures

Dow futures -0.5 % at 32466

S&P futures -0.7% at 4057

Nasdaq futures -1.1% at 12418

In Europe

FTSE -0.12% at 7506

Dax +0.18% at 14158

Euro Stoxx  -0.35% at 3729

Rising prices hit retailers’ bottom lines

After a strong close on Tuesday, stocks are set to fall on the open today as inflation fears and weak earnings hit market sentiment.

While strong retail sales helped boost stocks yesterday, disappointing quarterly numbers from retail giants Target and Lowe’s are causing concerns today. The data yesterday suggests that consumers are still spending despite surging inflation. In other words, consumers are weathering the inflation hit. Retailers, however, are not doing so well at navigating through 40-year high inflation.

Earlier in the week, Walmart flashed warning signals with disappointing earnings hit by rising costs. Today Target’s Q1 earnings were also disappointing as input costs surged. Profits halved to $2.19, down from the $3.06 forecast. Lowe’s also reported a larger than expected drop in same-store sales.

Looking ahead, housing starts, and housing permit data will be in focus.  Is the housing market starting to cool as the Fed hikes interest rates?

Yesterday Fed Chair Powell said that the central bank would continue hiking rates until inflation was back under control.

Where next for the S&P500?

S&P500 rebounded off the low at 3860, retaking the psychological level 4000, before running into resistance at 4100, the February low. Failure to retake this level combined with the bearish RSI suggests that there is still some downside to be had.  Immediate support can be seen at 4000 ahead of 3920 and 3860. On the flip side, should buyers push above 4100 and the 20 sma at 4140, this would be significant because the price has traded below the 20 SMA for the past five weeks.

FX markets USD rises, GBP slumps

USD is rising, snapping a three-day losing streak as it traces yields higher. Comments by Federal Reserve Chair Powell that the central bank will take the necessary action to bring inflation back to the 2% target.

GBP/USD is falling after UK CPI rose to 9% YoY in April, a 4-decade high but fell short of the 9.1% forecast. Core inflation rose to 6.2%, up from 5.7%. Surging energy bills, and rising food and fuel prices driven up by the Ukraine war have lifted inflation. The BoE now has a battle on its hands to bring inflation under control as growth has stalled and actually contracted in March.

EUR/USD is falling owing to dollar strength and following the release of Eurozone CPI data, which was downwardly revised in April to 7.4% YoY, from 7.5%. This doesn’t really matter in the sense that it is still a record high, and it’s not going to change anything at the ECB, where calls for a July rate hike are gaining momentum.

GBP/USD  -0.7% at 1.24

EUR/USD  -0.4% at 1.010

Oil rises as the demand picture looks set to improve

Oil prices are rising on optimism that the demand outlook will rise as the COVID picture improves in China and following a large draw on inventories.

There appears to be light at the end of the tunnel for China’s strict COVID lockdowns which are lifting the demand outlook.

In addition to the demand side of the equation looking more upbeat, supply concerns are under the spotlight after Russian crude output fell 9% compared to the previous month. Western sanctions are clearly having an impact, and that is without the EU ban on Russian oil, a ban which would tighten the market even further if achieved.

Doubts still exist over whether the EU ban on Russian oil will be approved, so the market isn’t fully pricing it in. Should Hungary be won over and the proposal approved, then oil prices are likely to push towards $120.

EIA data is due later today and comes after API data showed a 2.4 million barrel draw.

WTI crude trades +1.04% at $111.08

Brent trades +1.3% at $111.74

Looking ahead

15:30 EIA crude oil inventories

21:00 Fed Harker speaks