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Economy

Top 5 Things to Watch in Markets in the Week Ahead

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© Reuters

By Noreen Burke

Investing.com — In the coming week investors will be looking to retail sales data and retail earnings, along with comments from Federal Reserve officials, including Chair Jerome Powell, for clues on the future path of interest rates. Friday’s end of week bounce in equity markets came amid hopes markets are near the bottom after a brutal slide, but the tumble may still have more room to run. Crypto investors will also be monitoring the fallout after a massive price collapse. Meanwhile, U.K. inflation data is expected to show consumer prices surged above 9% in April. Here’s what you need to know to start your week.

  1. U.S. economic data

Economic data this week will be closely scrutinized as investors try to gauge whether aggressive tightening by the Fed to curb soaring inflation will result in a hard or soft landing for the economy.

Tuesday’s retail sales figures for April are expected to show solid gains thanks to steady auto sales. Economists are forecasting a 0.7% increase after a 0.5% rise in March, despite higher inflation.

The U.S. is also to release regional data on manufacturing activity along with reports on housing starts and existing home sales. Housing data is expected to cool as a result of rising mortgage rates.

Fed Chair Jerome Powell is to speak on Tuesday and is expected to reiterate that the U.S. central bank will hike rates by half a percentage point at each of its next two meetings.

Other Fed speakers during the week include New York Fed President John Williams, St. Louis Fed President James Bullard, Philadelphia Fed President Patrick Harker, and Chicago Fed President Charles Evans. 

  1. Retail earnings

As well as economic data investors will be looking to a spate of retail earnings reports during the week for indications of just how much the cost of living squeeze could be eroding the spending power of consumers.

The largest U.S. retailer Walmart (NYSE:WMT) and home improvement giant Home Deport are both due to report fiscal first-quarter earnings before the market open on Tuesday. Target (NYSE:TGT) and Lowes are scheduled to report ahead of the open on Wednesday, followed by Macys on Thursday.

Investors will be looking particularly closely at retailers’ guidance for the second half of this year amid elevated inflation, higher wage and fuel costs and ongoing supply chain disruptions.

  1. Market bottom?

Wall Street ended higher on Friday after another volatile week in markets as hopes that inflation may be close to peaking were offset by fears that aggressive policy tightening by the Fed could tip the economy into recession.

Despite Friday’s gains, the S&P 500 and the Nasdaq posted their sixth straight weekly loss, while the Dow recorded its seventh consecutive weekly decline.

Investors are looking for clear signs of a market bottom, amid fears the sharp selloff in equities may not be over.

“I don’t think we are out of the woods yet on a near-term basis,” Mark Hackett, chief of investment research at Nationwide told Reuters. “That being said, investor expectations have been reset dramatically.”

Rather than looking for signs of a bottom, Willie Delwiche, an investment strategist at market research firm All Star Charts told Reuters he is focused on clearer indications that stocks can mount a sustained rally.

“Too many people right now are trying to pick a bottom and that’s proving to be futile and expensive,” Delwiche said. “This is a risk-off environment … Moving to the sidelines, letting the volatility play out, makes a lot of sense for investors.”

  1. Crypto crash

Investors will be closely watching crypto assets in the week ahead after a volatile week last week, dominated by the collapse in value of stablecoin TerraUSD, which broke its 1:1 peg to the U.S. dollar.

Stablecoins are tokens pegged to the value of traditional assets, often the U.S. dollar, and are the main medium for moving money between cryptocurrencies or for converting balances to fiat cash.

Ratings agency Fitch said last week that cryptocurrencies and digital finance could face “significant negative repercussions” if investors lose confidence in stablecoins, as many regulated financial entities have increased their exposure to the sector in recent months.

Crypto assets have been swept up in broad-based selloff of risk assets amid concerns over elevated inflation and rising interest rates, but wider financial markets have so far seen little knock-on effect from the cryptocurrency crash.

Fitch said that weak links to regulated financial markets will limit the potential of crypto market volatility to cause wider financial instability.

  1. UK inflation surge

The UK is to release inflation data on Wednesday that is expected to show consumer prices leaped to 9.1% on a year-over-year basis in April, in what would be the largest jump in annual inflation since 1980 and the fastest rate of inflation since 1982.

The Bank of England said it expects inflation to rise above 10% in the fourth quarter when it hiked interest rates earlier this month.

UK jobs data a day earlier is expected to underline tightness in the labor market, adding to wage and price pressures.

In the Eurozone, European Central Bank President Christine Lagarde is to speak on Tuesday, while the ECB is to publish its latest meeting minutes on Thursday.

–Reuters contributed to this report

 

Economy

Best Buy sees lower TV, computer sales as inflation hits shoppers’ wallets

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© Reuters. FILE PHOTO: A person enters a Best Buy store in Manhattan, New York City, U.S., November 22, 2021. REUTERS/Andrew Kelly

By Uday Sampath Kumar

(Reuters) -Best Buy Co Inc cut its annual profit forecast on Tuesday due to lower demand for TVs and computers, making it the latest major retailer to underline the impact of 40-year high inflation on shoppers’ spending power.

The company’s shares, which fell more than 16% last week in a broader retail selloff, were up about 2%, as the electronics seller reported first-quarter sales that were not as bad as feared.

“We believe investors had anticipated the earnings miss and guidance reduction to a large degree following reports of similar struggles at other retailers,” said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group.

A spike in prices for everything from toothpaste to gas is taking a toll on consumer spending, while driving companies such as Best Buy, Walmart (NYSE:WMT) Inc and Target Corp (NYSE:TGT) to report their worst earnings miss in at least five years.

“Electronics are highly discretionary, big-ticket items. This puts them directly in the firing line of households looking to trim expenditure,” said Neil Saunders, managing director of GlobalData.

Best Buy reported earnings of $1.57 per share, missing estimates of $1.61, according to Refinitiv IBES data, with the company saying it was forced to discount more than expected in some product categories to clear inventory.

Adjusted earnings forecast for 2023 was cut to a range of $8.40 to $9 per share from a range of $8.85 to $9.15.

Still, even with higher gas and food prices, rising interest rates, and the war in Ukraine all affecting consumer behavior, Best Buy is not currently planning for a full recession, Chief Executive Officer Corie Barry said on an analyst call.

Quarterly comparable sales fell 8%, but beat tempered expectations of a 9.1% drop. It forecast full-year comparable sales to fall 3% to 6% versus its previous outlook of a 1% to 4% drop.

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Economy

EU proposes to make seizing assets easier, including of sanctioned oligarchs -document

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2/2

© Reuters. FILE PHOTO: Russian oligarch Roman Abramovich’s super yacht Solaris is seen at Barcelona Port in Barcelona, Spain, March 3, 2022. REUTERS/ Albert Gea

2/2

By Francesco Guarascio and Jan Strupczewski

BRUSSELS (Reuters) – The European Commission wants to make it easier to confiscate assets linked to serious illegal activities and suspected criminals, including those evading European Union sanctions against the Kremlin, according to a draft document seen by Reuters.

The legislative proposal, due to be published on Wednesday and still subject to changes, is aimed at addressing a longstanding weakness in the EU where many states lack sufficiently robust legal frameworks to seize criminal assets, making it easier for criminals to hide their resources and benefit from illegal activities.

The war in Ukraine further exposed this weakness, as many states are struggling to freeze assets of people sanctioned by the EU for their ties to the Kremlin – and many more lack legal powers to confiscate frozen assets.

The legislative proposal would address these weaknesses by creating a common legal framework.

Crimes for which the new rules would apply are terrorism, participation in a criminal organisation, human trafficking, money laundering, and also the violation of EU sanctions, which under a separate proposal, also to be published on Wednesday, would become a crime across the EU.

Asset seizures would generally require a conviction, but under the draft law, they could be allowed pending trial in some cases for suspected criminals, and also when they are “transferred by a suspected or accused person to third parties,” including family members.

Authorities in EU states have said one of the main obstacles they faced in enforcing the sanctions against Moscow was that affected people had their assets registered under somebody else’s name, or transferred them before sanctions were implemented.

“We are working on a European tool to make confiscations possible everywhere in all EU states”, the EU justice commissioner Didier Reynders said while pre-announcing the incoming measures earlier in May. He said one of the ultimate aims was to redistribute proceeds from these confiscations to Ukraine.

To become law, the proposal needs the backing of EU governments, which have traditionally been cautious about reforms that require changes to their criminal laws.

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Economy

Oh Snap! Social media firms sink after bleak warning from Snapchat parent

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© Reuters. FILE PHOTO: A woman stands in front of the logo of Snap Inc on the floor of the New York Stock Exchange (NYSE) in New York City, NY, U.S. March 2, 2017. REUTERS/Lucas Jackson

By Nivedita Balu and Medha Singh

(Reuters) – Snap Inc (NYSE:SNAP)’s shares plunged nearly 40% on Tuesday after a profit warning from the Snapchat parent signaled tough times ahead for the once-booming digital ad industry, sparking a sector-wide selloff.

The company was on course to erase more than $14 billion in market value, while Meta Platforms, Pinterest (NYSE:PINS), Twitter (NYSE:TWTR) and Google-parent Alphabet (NASDAQ:GOOGL) were altogether set to lose nearly $140 billion if losses hold.

Snap said on Monday it expected to miss quarterly revenue and profits targets that it set just a month earlier and would have to slow hiring and lower spending.

The bleak view from one of the sector’s most known players underlines how the Russia-Ukraine war, surging inflation and rising interest rates are hobbling social media companies at a time when they had just started recovering the impact of changes to Apple (NASDAQ:AAPL)’s iOS operating system.

“Snap is a proxy for online advertising and when you see weakness there then you automatically think Facebook (NASDAQ:FB), Pinterest and Google,” said Dennis Dick, a trader at Bright Trading LLC in Las Vegas.

“Once you start thinking about Google, that’s when the markets starts to sell off.”

Tuesday’s selloff comes days after a Bank of America (NYSE:BAC) fund managers survey indicated investors are becoming increasingly bearish on tech stocks, a stark reversal to a bullish trend in the past 14 years.

Analysts also said Snap’s outlook for core profit suggested expenses will outpace its revenue growth, given headcount was up 52% in the prior quarter. The company also faces pressure from TikTok and a shift in ad budgets to Google and Facebook, they added.

“There’s a lot to deal with in the macro environment today,” Chief Executive Officer Evan Spiegel said at a tech conference on Monday.

Graphic: Digital advertising stocks this year – https://graphics.reuters.com/DIGITAL%20ADVERTISING-STOCKS/dwpkrnzogvm/Digital%20advertising%20stocks%20this%20year.png cb55bba9-860d-4771-9546-5eaef7b68cf01

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