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Retailers’ strong earnings buoy Wall Street, Asian markets to open higher


Consumer stocks pushed Wall Street higher amid better-than-expected earnings from major retailers as both Walmart and Home Depot topped earnings estimates and provided positive guidance. Bath & Beyond soared 70% as meme traders piled into the retailer’s shares. Despite cloudy economic outlooks, bullish bets continue shoring up equity markets. Earnings optimism and “Fed pivot” expectations contributed to the two-month-long bulls’ momentum. The recent short squeeze trades in meme stocks also reflect the risk-on dominants of broad sentiment.

Asian markets are set to open higher despite a slump in Hong Kong markets

Hang Seng Index slumped more than 1% on Tuesday, dragged by the Chinese food delivery giant, Meituan, which shares plunged 9% after the largest mainland tech company, Tencent, proposed to sell its stake of US$24 billion. This happened one day after the PBOC surprisingly cut two major interest rates to stimulate the sluggish economy amid a slew of weak economic data released on Monday. Tencent, whose markets value exceeded Alibaba in 2021, is to report its second-quarter earnings later today.

Despite poor performances in the Hong Kong stock markets, broad APAC equities are set to open higher following a strong close on Wall Street.

BHP’s strong earnings boosted material resources stocks in the ASX on Tuesday. The benchmark index is set to open slightly higher as the S&P/ASX 200 futures are up 0.17%. CSL’s second-quarter earnings will be eyed by investors in today’s session. On the economic front, the Q2 wage price index is in focus, which will provide clues to RBA’s rate hike trajectory.  

The S&P/NZX 50 rose 0.51% at the open, with Fletcher Building jumping 6% on strong FY22 results. The building company’s whole year revenue was up 5% to NZ$8,498 million. The company announced a dividend of NZ 0.22 cents per share, bringing the full-year FY22 payout to NZ$0.4.

The RBNZ’s policy meeting will be on close watch later this afternoon, when a 50-basis points rate hike is highly expected and bring the cash rate to 3%, to lead all the other major central banks. This could cause the Kiwi dollar to further strengthen against the other currencies after a two day-drop due to weak Chinese economic data.

Consumer stocks shine on Wall Street amid strong earnings

The Dow Jones Industrial Average was up 0.45%, S&P 500 rose 0.4%, and Nasdaq advanced 0.62%.

Better-than-expected earnings from big retailers buoyed Wall Street, with meme stocks holding extra optimism. The Dow Jones Industrial Average closed above 34,000 for the first time since early May. S&P 500 topped 4,300, approaching the 200-day MA.

6 out of 11 sectors in the S&P 500 finished higher, with consumer staples and consumer discretionary sectors leading gains. Walmart’s shares rose 5% after the retail giant topped earnings expectations and kept the guidance of a 3% growth for the second half. Home Depot also beat both EPS and revenue expectations with a 4% jump in the share price. Other major retailers’ stocks followed the suit, with Target up 3.9%, and Macy’s jumping 7%.

Meme stock shot up on short squeeze trades. Bed Bath & Beyond soared 70%, AMC was up 4%, and GameStop rose 7.6%.

Most mega-cap companies’ shares were up as bond yields slipped on "Peak Fed" bets. Tesla rose 3% to nearly a three-month high ahead of its 3-for-1 stock split on 24 August.

Tech shares, however, lost steam, with most mega-caps finishing lower. Energy stocks fell further as oil dropped for the second straight trading day. 

On the economic front, housing starts for July dropped to 1.45 million, the lowest since March 2021. Along with a slump in the Empire State manufacturing index on Monday, darkened economic outlooks promoted bets for the Fed to scale back in the rate hike pace.

The major companies’ performance overnight (17 August 2022)

Source: CMC Markets NG

“Fed Pivot” bets may restrain the US dollar’s strength

The strong movement of the king dollar may not endure considering the odds for a “Fed pivot” strengthen after cooled inflation data was released for July last week.

The US dollar index was flat after the one-day gain against the other major currencies. EUR/USD consolidated above 1.01, which is the key near-term support, and finished flat at 1.0170. Both Australian and New Zealand dollars were also little changed against the greenback.

However, the Canadian dollar weakened due to a further slump in oil prices. The Japanese Yen also dropped against the US dollar.

Crude oil slumped 3% amid a strong US dollar, demand concerns

Crude prices dropped for the second straight trading day as demand concerns sparked further sell-off in the commodity markets. A strong US dollar also pressured oil and metals prices. However, a potential Fed’s turnaround in rate hikes could reverse the recent downtrend in crude oil prices on the back of no-solution issues around the undersupply.

WTI futures fell 3.36%, to $86.43 per barrel. And COMEX gold futures were down 0.43%, to $1,790.4 per ounce.

Bond yields rose slightly, and the yield curve flattened

The 10-year US Treasury yield rose to 2.808%, and the yield on the 2-year note was up to 3.268%. The flattened yield cure continued to point to a cloudy economic outlook.

The Australian 10-year government bond yield was higher at 3.27%, and the yield on the 10-year New Zealand peer rose to 3.39%.

Leading cryptocurrencies were under pressure

Both bitcoin and Ethereum were flat in the last 24 hours as the crypto rebound lost steam this week. Bitcoin was at 23,896 (+0.22%), and Ethereum was at 1,876 (-0.36%).

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