US EARLY MORNING: US futures are lower; retail hit after Walmart cuts profit view; mega-cap earnings ahead

MARKETS NOW: APAC stocks took their cue from Wall Street, eventually trading mostly higher, albeit with mild gains following mixed trading conditions in the early hours until the China open. European bourses started with a note of caution ahead of officials holding an emergency summit on energy, while corporate updates have been mixed. US equity futures are lower, but off overnight lows. RTY -0.1%, ES -0.3%, NQ -0.3%, YM -0.4%. Treasury yields are lower by 2-6bps across the curve, with major spreads flatter. The Dollar Index is a little above unchanged. Crude futures are rallying supported by concerns over supply tightness; analysts expect weekly crude inventories will draw down.

RETAIL PRESSURED: News that Walmart was cutting its profit outlook as rising inflation hits its consumers has weighed on retail focussed shares, with others from AMZN to TGT pressured after the supermarket giant lowered guidance for the second time in ten weeks and ahead of its results due August 16th (separately, Amazon is hiking prices for its Prime service in Europe). The inflation theme is well-known, and the narrative has been shifting onto the impact that these soaring costs are having–and will have–on consumer behaviour (as well as corporate profit margins), and the knock-on impact it will have on growth. These themes will be conveniently tied together later this week, when the Fed announces a rate rise on Wednesday (75bps expected, to tackle high inflation; our preview can be accessed here) and the official first look at Q2 GDP data are released on Thursday (growth of 0.5% is expected, avoiding a “technical” recession). But this theme will also persist into Q3 and Q4 too, with some already flagging concerns about how consumers’ lower real spending power potentially threatens the crucial holiday sales period towards the end of the year (which will be reflected in results released early 2023). UBS this week said that US consumers currently appear willing to cut their rates of savings to support consumption, and this dynamic makes a ‘recession’ unlikely for now, but the situation is delicate: “if consumers stop being willing to cut savings before real wages stop falling, then a recession becomes more likely” UBS Global Wealth Management’s chief economist said, adding that “a high risk period is likely to be in September/October, when consumers return from their very expensive vacations, contemplate the expense of the Christmas season ahead, and may then decide to save a little more and spend a little less.”

DAY AHEAD: It’s a heavy day for US data, but all of the releases are second-tier in nature. Perhaps the most important of today’s releases will be the Conference Board’s gauge of consumer confidence for July, which is expected to slip a little. FHFA, CaseShiller house prices are due, though are not likely to have much impact given they are stale, while New Home Sales will likely emphasise known themes around the slowing pace of sales amid rising rates. The Richmond and Dallas Fed regional manufacturing reports are due, although last week’s grim Philly Fed has already largely lowered the tenor of expectations for the ISM’s July manufacturing data (released August 1st). After hours, the API will release its gauge of private inventories. European policymakers will be making a lot of comments on energy today as they hold an emergency meeting as Russia prepares to cut gas supply to Europe to 20% of capacity from Wednesday. The earnings slate is heavy, and we preview today’s main releases below. Elsewhere, focus will start shifting onto Wednesday’s FOMC meeting (our preview can be accessed here). Full Day Ahead here.










26 Jul 2022 - 09:31- Research Sheet- Source: Newsquawk

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