By Geoffrey Smith
Investing.com -- The dollar falls and European currencies breathe a sigh of relief on signs that the missile that hit Polish territory on Tuesday was, in fact, fired by Ukrainian air defense forces rather than Russia. Crude oil prices have soon found another reason to be nervous about geopolitical risk, however. The U.S. session is likely to focus on the consumer, with retail sales data for October set to outpace inflation, and earnings from Target (NYSE:TGT), TJX (NYSE:TJX) and Lowe’s (NYSE:LOW) to follow Walmart's (NYSE:WMT) impressive report on Tuesday. Stocks are indicated flat ahead of the open. Growth-stock bellwether Nvidia (NASDAQ:NVDA) reports after the bell. And the inflation picture goes from bad to worse in the U.K. Here's what you need to know in financial markets on Wednesday, 16th November.
1. Retail sales set to outpace inflation; can Target match Walmart?
The U.S. will report retail sales data for October that are set to outpace the monthly rise in prices for the first time in several months.
Retail sales are expected to have risen by 1.0% from September, compared to an increase of only 0.4% in the consumer price index. If that turns out to be the case, it will restore a bit of hope about the Federal Reserve’s arguments that it can engineer a ‘soft landing’ for the U.S. economy over the coming months.
The overall number is likely to be inflated by rising spending on gasoline, but core sales are expected to have risen 0.4% - also a little ahead of the 0.3% core CPI reading.
Company-level data from the retail sector is set to continue with reports from Target and TJX. Lowe’s has already reported, beating expectations on both top and bottom lines.
2. Europe breathes out amid signs that missile explosion in Poland wasn't fired by Russia
The dollar retreated and European currencies rose after reports playing down the risk that NATO will be dragged more deeply into Russia’s war in Ukraine.
Polish President Andrzej Duda said it was “highly probable” that the missile that landed in southeast Poland on Tuesday, killing two people, was fired by Ukraine’s air defense forces rather than Russia. The missile was apparently one of many fired to counter another devastating wave of strikes against Ukraine’s energy sector, which caused blackouts in cities across the country.
The incident had earlier triggered fears that Russia had struck directly at Poland, creating the risk of Poland triggering the activation of NATO’s mutual defense pledges and forcing a direct response by NATO.
The Polish zloty and Hungarian forint rallied strongly on the news, while the euro also rose against the dollar.
3. Stocks set to open flat; EVs in focus after Mercedes slashes prices; Nvidia due late
U.S. stocks are set to open mixed later after relatively mild producer price inflation data on Tuesday encouraged hopes of a relatively quick end to the Federal Reserve’s interest rate increases.
By 06:20 ET (11:20 GMT), Dow Jones futures, S&P 500 futures and Nasdaq 100 futures were all flat, having risen by between 0.2% and 1.5% on Tuesday.
While earnings from the country’s retailers will grab most of the early attention, there will also be focus on electric vehicle makers after Mercedes Benz (ETR:MBGn) said it would cut its EV prices in China by as much as 33%. Nio (NYSE:NIO) and Xpeng (NYSE:XPEV) ADRs were down over 2% in premarket, while Tesla (NASDAQ:TSLA), which hit a two-year low last week under pressure from CEO Elon Musk’s selling, was flat.
After the bell, Nvidia and Cisco (NASDAQ:CSCO) will round off the day’s action.
4. U.K. inflation hits 11%
Inflation may be on the decline in the U.S., but it’s still going strong in Europe.
The U.K.’s consumer price index rose 11.1% on the year in October, thanks to steep rises in energy and food prices. That’s despite government action to cap household energy bills. Prices were up 2.0% on the month alone.
The numbers, which were above consensus forecasts, complicate the task of Chancellor of the Exchequer Jeremy Hunt as he prepares to announce the government’s tax and spending plans on Thursday. These will now have to incorporate another big rise in servicing the U.K.’s inflation-linked debt, and may have to offer larger pay increases to appease public-sector workers, whose earnings rose only 2% in the year through September.
The pound rose after Hunt signaled that the government wouldn't try to stand in the way of further interest rate hikes from the Bank of England.
5. Oil swings on geopolitical volatility; EIA inventories due
Crude oil prices swung sharply overnight under the influence of geopolitical developments. Having spiked late on Wednesday in response to the news of the missile incident in Poland, they retraced in early trading as the risk of an escalation in Ukraine receded.
However, a drone attack on an Israeli-owned oil tanker off the coast of Oman at the tip of the Arabian peninsula quickly restored the extra risk premium.
By 06:35 ET, U.S. crude prices were up 0.2% at $87.09 a barrel, while brent futures were up 0.2% at $94.09 a barrel.
Weekly U.S. government data on inventories of crude and distillates are due at 10:30 ET.