By Geoffrey Smith
Investing.com -- The health of the U.S. consumer is in focus as Walmart and Home Depot report earnings. Stock futures are cautiously lower ahead of the releases. Monthly data for U.S. housing starts and building permits will likely corroborate a sharp drop in the NAHB’s market index. Germany’s economic outlook worsens as power prices surge to new records, and a revival of the UN-Iran nuclear deal edges closer. Here’s what you need to know in financial markets on Tuesday, 16th August.
1. Walmart, Home Depot earnings
Two big bellwethers for the American consumer report earnings early. Home Depot’s (NYSE:HD) numbers are already out, fractionally ahead of expectations.
However, the big number is Walmart (NYSE:WMT), whose scale and breadth of operations make it a generally reliable proxy for consumer spending in general. The group’s disappointing first quarter figures and outlook had set the stage for a nightmarish couple of weeks for the retail sector, so there’s a lot riding on whether or not the Walton family store has gotten on top of its problems since then.
Analysts expect Walmart to report earnings per share down 15c from a year ago to $1.63, while inflation is expected to have taken revenue up to $150.9 billion from $141 billion a year ago.
2. Housing starts data to follow an apocalyptic warning from the NAHB
The U.S. will report housing starts and building permits for July, two numbers that are expected to show a further cooling-off in a housing market struggling with affordability issues and the sharp rise in mortgage rates over the first half of the year.
Housing starts are expected to have fallen for a third straight month to 1.54 million, which would be their lowest since October. Building permits are likewise expected to have edged down to 1.65 million, which would be their lowest since September.
In a longer term historical context, those numbers are still well above average – building permits would still be in line with their pre-pandemic record-high – but attention is likely to focus on the pace of the decline, given the precipitous drop in the National Association of Home Builders’ activity index on Monday.
3. Stocks set to open cautiously lower; Tencent (HK:0700), Meituan eyed
U.S. stock markets are set to open cautiously lower, with futures sitting out the release of Walmart’s data before making any major moves.
By 06:20 ET (10:20 GMT), Dow Jones futures were down 56 points, or 0.2%, while S&P 500 futures and Nasdaq 100 futures were down by a fraction more.
In addition to the major retail earnings, Agilent (NYSE:A) and Jack Henry (NASDAQ:JKHY) will report after the closing bell. Other stocks likely to be in focus later include Chinese ADRs Tencent (OTC:TCEHY) and Meituan (OTC:MPNGY), after a report suggesting that Tencent is looking at selling its entire holding in the food delivery group to relieve the pressure from Chinese antitrust and Internet regulators.
4. German power prices hit new high as Rhine dries out, gas surges again
Europe’s energy crisis shows no sign of easing up as the continent’s drought compounds the misery created by the sharp reduction in Russian gas supplies.
Germany’s benchmark baseload power price rose to a record for a fifth consecutive trading session, briefly topping 500 euros a megawatt-hour against the backdrop of another 7% rise in natural gas prices.
The latest leg up has been caused by water levels in the river Rhine dropping below a critical threshold, stopping barges from carrying alternative fuels such as coal and diesel to power plants in the south of Germany. Power prices have now doubled since June. The drought has also forced a sharp cut in output from France’s nuclear reactors, which are typically big exporters to the rest of Europe.
Earlier, the ZEW German economic sentiment index, the first of the big European sentiment surveys this month, showed a further decline - although a smaller one than feared.
5. Oil under pressure as Iran deal edges closer to revival; API inventories due
Crude oil continues to bounce along near its 2022 lows amid signs that Iran is inching toward acceptance of an EU-proposed plan to revive the 2015 nuclear deal.
The EU said it had seen ‘nothing alarming’ in Iran’s response to the plan, received late on Monday, which raises the chance of the Biden administration also accepting it – subject to the usual caveats of U.S. politics.
By 6:30 AM ET, U.S. crude futures were down 1.2% at $88.34 a barrel, while Brent crude was down 1.6% at $93.63 a barrel. The American Petroleum Institute releases weekly inventory data at 04:30 PM ET as usual.