By Geoffrey Smith
Investing.com -- More big U.S. retailers report earnings, fleshing out the messages sent on Tuesday by the retail sales report and Walmart (NYSE: WMT ). The European Central Bank may be eyeing a 50 basis point hike in its key rate in July, and the pound suffers after inflation hits a 40-year high - just as the U.K. appears on the verge of triggering a trade war with the EU. Oil prices push higher again after another strong inventory report, and JPMorgan's (NYSE: JPM ) shareholders think Jamie Dimon is quite rich enough, thank you very much. Here's what you need to know in financial markets on Wednesday, 18th May.
1. Retail earnings
A surprisingly strong retail sales report for April on Tuesday, coupled with a surprisingly weak quarterly update from Walmart , put a special focus on the barrage of earnings from the retail sector later.
Target (NYSE: TGT ) and TJX (NYSE: TJX ) will report before the open, and will all be scanned for corroboration of Walmart’s gloomy predictions. Lowe’s (NYSE: LOW ) has a higher bar to jump over, given that rival Home Depot 's (NYSE: HD ) report suggested that the home improvement boom still has some legs left despite signs that the housing market is cooling.
2. ECB expectations shift
The euro held above $1.05 as money markets raised their expectations for interest rate hikes from the ECB by year-end. Short-term interest rate futures now reflect expectations of 100 basis points of tightening from Frankfurt, after Dutch central banker Klaas Knot (a noted hawk) on Tuesday raised the possibility of a 50 basis points hike in July, the first time that any ECB policy-maker has said that.
Bank of Finland Governor Olli Rehn also said on Wednesday that the ECB should get its key rate above zero “relatively quickly”, adding that many ECB board members feel the same way.
The Eurozone’s CPI was revised down a touch to 7.4% in April, while the rate of inflation excluding food and energy was confirmed at 3.9%. The dangers of hiking into a sharp economic slowdown were, however, also on show, as car registrations in the EU fell 20.6% on the year in April. They’re down 14.4% year-to-date.
3. Stocks set for a breather after rally; JPMorgan shareholders reject Dimon pay package
U.S. stocks are set to open a little lower later, giving up some of the sharp gains made on Tuesday as Federal Reserve Chair Jerome Powell passed up a chance to get even more hawkish in response to the retail sales report.
In addition to the retailers, companies reporting earnings later include Analog Devices (NASDAQ: ADI ) and Experian (OTC: EXPGF ), while Cisco (NASDAQ: CSCO ) is the biggest company reporting after hours.
Other stocks likely to be in focus are Twitter (NYSE: TWTR ) (again), after it said it intends to hold Elon Musk to his legal commitments regarding the leveraged buyout offer of $54.20 a share, and JPMorgan, after shareholders passed a non-binding motion rejecting CEO Jamie Dimon’s bumper pay package awarded last year.
4. Sterling struggles as U.K. inflation surges, Brexit fears revive
The pound struggled again as a 40-year high in inflation combined with revived fears of a trade war with the EU to cast further gloom over the U.K.’s economic outlook.
The leap in inflation to 9.0% was widely expected, due to a hike in VAT and regulated household energy bills. However, concern is mounting at the risk of the EU imposing tariffs on U.K. imports and restricting access to the single market for key services sectors – including finance, after the U.K. government formally announced its intention to make unilateral changes to protocols in the Brexit deal. The U.K. wants to scrap customs checks on goods going between mainland Britain and Northern Ireland.
By 6:30 AM ET, the pound was down 0.6% against the dollar at $1.2413.
5. Oil pushes higher after drop in API crude stocks
Crude oil prices rose again, after a surprisingly strong report from the American Petroleum Institute showing sustained strong oil demand despite record high prices for gasoline and diesel. The government’s data are due at 10:30 AM ET.
Geopolitical risks were also on the rise again after Libya’s parliament-elected Prime Minister decamped to the town of Sirte, having been chased out of the capital Tripoli by rival factions. That sets up the prospect of further disruptions to shipments from the key North African supplier – one not constrained by the OPEC+ quota agreement.
Comments by Treasury Secretary Janet Yellen suggesting that the EU impose tariffs on Russian oil rather than an embargo appear to have done little to ease market tightness.
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.