Despite Upbeat Walmart and Home Depot Numbers, Target Earnings Came In on the Softer Side

U.S. equity futures turned into slight declines following lukewarm Asia trading. S&P 500 contracts and Dow Jones futures both edged down by about 0.2% at the time of writing. The dollar pulled back from session highs, boosting most Group-of-10 currencies apart from the Japanese yen. U.S. Treasuries are trading little changed, with yields up 1 to 2 basis points across the curve. Oil rose along with gold, while Bitcoin (BTCUSD) slid again to $16,525.

Yesterday the U.S. stocks closed off its best levels of the day, but overall, showed some impressive resilience to selling efforts today. The major indices started the session with decent gains, albeit in choppy conditions, fueled by a pleasing earnings report from Walmart (WMT) and an October Producer Price Index (PPI) that came in cooler-than-expected. Sectorwise, the IT sector was boosted by strong semiconductor components. Particularly, TSMC (TSM) was a winning standout for the group after Berkshire Hathaway disclosed a new position of ~60.06 million shares in a 13F filing. The PHLX Semiconductor Index was up 3%. Energy complex futures also settled the session higher. WTI crude oil futures rose 1.0% to $86.69/bbl and natural gas futures rose 2.2% to $6.44/mmbtu.

The PPI report for October revealed some welcome disinflation at the producer level with total PPI up 8.0% YoY, versus 8.4% in September, and core PPI, which excludes food and energy, up 6.7% YoY, versus 7.1% in September. This added fuel to the market's notion that the Fed is likely to take a less aggressive rate-hike approach going forward.

Former President Donald Trump formally filed a notice of a third run for the White House Tuesday night – setting up a two-year fight for the heart of the Republican Party, following a midterm election that largely went the Democrats' way. He may be in for a rough fight after last Tuesday's runaway re-election of Florida Gov. Ron DeSantis, one of the few Republican high points from the midterm elections. Things deteriorated in a hurry, however, after unconfirmed reports circulated that unidentified, thus far, missiles crossed the Ukrainian border and hit Polish territory, reportedly killing two persons there. The deterioration took the S&P 500 below the 4,000 level, and the index was unable to reclaim a position above that level for the rest of the session. On top of that, the BofA Global Fund Manager Survey again showed an elevated cash position of 6.2% that is higher than what was seen during the global financial crisis and the 2020 pandemic panic, stirring new concerns about banks’ and overall investment industry performance.

At the Bloomberg New Economy Forum, sovereign wealth funds in Abu Dhabi and Singapore warned that markets have further to drop, while venture capital investors betting on startups said the industry is in for a “reset” after valuations disconnected from fundamentals.

Earningswise, Target Corp (TGT) reported Q3 FY22 sales growth of 3.4% YoY to $26.52 billion, beating the consensus of $26.38 billion. Comparable sales increased 2.7% on top of 12.7% growth last year. The gross margin for the quarter contracted by 330 basis points to 24.7%. The gross margin rate reflected higher markdown rates, inventory shrink, and merchandise and freight costs, net of retail price increases, compared with last year. The operating margin was 3.9%, and operating income for the quarter declined 49.2% to $1 billion. The company accumulated $954 million in cash and equivalents. Cash provided by operating activities YTD totaled $552 million. Inventory at the October end was $17.1 billion, up 14.4% YoY. EPS of $1.54, however, missed the consensus of $2.13.

European markets are in the red today as investors digested a slew of corporate earnings and palpable – yet, very controversial – impact of geopolitical events. The Pan-European Stoxx 600 as of 3:00 p.m. CET is declining by 0.73%. Also, at the time of writing, the German DAX traded 0.86% lower. The British FTSE 100 decreased by 0.14%, while the French CAC 40 fell by 0.47%.

Earlier this morning, China reported weaker-than-expected retail sales, industrial production, and fixed asset investment data for October, stirring hope that new stimulus will be enacted and that officials will find away to embrace a moveaway from the economically-damaging zero-Covid policy.