US and European futures are trading lower as traders are reacting to the results announced by Walmart. The company warned once again that the threat of a recession is a real one as spending by consumers has dropped in their stores. Walmart cut its profit forecast due to rising food inflation and painted a highly gloomy picture for the US economy. This is despite the fact that President Biden doesn’t think that the US economy will face a recession. However, it is a different matter that the US has now changed the official definition of recession. In reality, the US is already in a recession.
US stocks closed mostly flat yesterday with minor gains. The S&P 500 increased by 0.1%, the Dow Jones Industrial Average soared 0.3% while the Nasdaq index dropped by 0.4%. Despite all of this, the US benchmarks are still on track to record decent monthly gains and the only thing that can derail that is the upcoming Fed meeting.
As mentioned yesterday, the big event for this week remains the FOMC meeting taking place on Wednesday. By default, traders are expecting an interest rate hike of 75 basis points from the Fed. As long as the Fed delivers on that, there will be no surprise for traders. In fact, this particular incident is more likely to be dollar negative as the greenback has scored some decent numbers. What matters the most is their forward guidance for their rates, which means by how much they will increase the interest rate after that. Will there be an interest rate hike of 50 basis points, or will there be an increase of 75 basis points? Of course, if the Fed hints that they will increase the rate by 50 basis points, that could only add more selling pressure on the dollar index, and an increase of 75 basis points may not lift the dollar index that much too. The meeting begins today and the Fed will conclude it tomorrow.
As for today, the focus continues to remain on earnings; Coca-Cola, McDonald’s, and General Motors will report their earnings before the market open. Tech stocks such as Microsoft and Alphabet will report their numbers after the market close. Chipotle Mexican Grill, UPS, and Enphase Energy will report their earnings after the market bell.
In terms of economic numbers or data, it will be all about the US Consumer Confidence data, although we will also get the US housing data as well, which is by default expected to show a weak number due to the rising interest rates. The US consumer confidence number is expected to drop to 97.3, and the number will come out at 14:00 GMT. The New Home Sales is also expected to decline to 663K, and the data will be released at 14:00 GMT as well.
Oil traders are certainly quick in bagging bargains as the Brent oil prices have crossed above the critical price level of $100 despite the fact that there are real concerns about the slowdown in economic activity in the biggest economy of the world, the US. The reason that we see upticks in oil prices is two folds: firstly, it is the decline in the dollar index, and secondly, the signs of a tight supply of physical crude. Natural gas prices are also highly likely to remain volatile, and without doubt, the path of the least resistance is skewed to the upside as Russia is ready to play the supply game. Yesterday, the country tightened the supply through Nord Stream 1 pipeline to Germany. Going into winter, gas supply for Europe will be the major issue as Kremlin is determined to play the tit-for-tat game, i.e., as the EU has imposed sanctions on Russia, Putin will use the gas card to punish the EU. Countries like Greece have already shown their displease to the EU’s request to slow down their gas consumption.
The crypto king, Bitcoin, continues to trade lower but, thankfully, it is holding on to the support of 20K for now. If we look at the price action and the price action alone, the weakness in the price action looks apparent, and this is because the price action on the intra-day and on the daily time frame looks weak. On the fundamental side, what would matter the most will not be how much the Fed will increase the interest rate tomorrow but the future path of their interest rate.