Investing.com -- Wall Street heads lower ahead of the release of key retail sales data as well as results from home improvement retailer Home Depot. China cuts interest rates to help its economic recovery, Russia hikes to support the ruble, while Japan’s economy bounces back to life.
1. Futures lower; Russia hikes rates
U.S. futures retreated Tuesday, ahead of the release of key retail sales data and quarterly earnings from a host of retail giants.
The largest U.S. retailers are set to report their results this week, which will give investors an important insight into the health of consumer spending, a major driver of the U.S. economy.
Following Home depot, Target (NYSE:TGT) will deliver results before Wednesday’s market open, followed a day later by Walmart (NYSE:WMT). Other major retailers such as Macy’s (NYSE:M), Nordstrom (NYSE:JWN), Kohl’s (NYSE:KSS), and Lowe’s (NYSE:LOW) will report in the coming weeks.
Sentiment among global investors improved in August to its least bearish since February 2022, a Bank of America survey showed on Tuesday.
That said, confidence may be hit by the news that Russia's central bank hiked its key interest rate by 350 basis points to 12% earlier in the session, an emergency rate move to try and halt the ruble's weakening.
2. Retail sales, Home Depot (NYSE:HD) earnings in focus
The U.S. is to release July retail sales data later in the session, which is expected to show a pickup in demand at the start of the third quarter after a smaller-than-expected increase in June.
Analysts are looking for an increase of 1.5% from the same time last year and 0.4% from the prior month.
Adding to the mix will be quarterly earnings from a number of the largest U.S. retailers this week, starting with Home Depot.
Home Depot reported a comparable sales decrease of 2% for the second quarter, an outcome that exceeded the estimated decline of 4.1%. Comparable sales in the United States saw a 2% decrease, surpassing the estimated decline of 3.6%.
The company's net sales amounted to $42.9 billion, demonstrating a 2% year-over-year decrease but exceeding the estimated figure of $42.1B. Earnings per share (EPS) were reported at $4.65, compared to $5.05 in the same period the previous year. The estimated EPS was $4.46.
Home Depot maintained its outlook for the fiscal year 2024, expecting comparable sales to be within the range of -2% to -5%. The company also still expects to see FY EPS decline between -7% to -13% compared to 2022.
3. Dollar hits new high after China’s rate cut
The safe-haven dollar climbed to a new high overnight in the wake of China’s central bank unexpectedly cutting interest rates to try and support an economy struggling to recover from its COVID hit.
The People’s Bank of China cut key policy rates for the second time in three months, reducing the rate on its one-year medium-term lending facility by 15 basis points to 2.50% from 2.65%.
Data released shortly after the PBOC decision showed slowdowns in industrial output and retail sales in July, raising further concerns about global growth and boosting demand for the perceived safety of assets denominated by the global reserve currency.
4. Japan’s economy sparks into life
The Japanese economy is starting to show some signs of life, after gross domestic product data showed annualized growth surging to 6% in the second quarter, well above the 3.1% expected.
This was the fastest expansion since the final quarter of 2020 and followed a revised 3.7% expansion in January-March.
The growth was largely export-driven, boosted by tourism and auto sales on the back of a weak yen, and will be welcomed by policymakers given inflation is starting to rise on the back of decades of ultra-easy monetary policy.
However, it wasn’t all good news as private consumption, which makes up more than half of the economy, fell 0.5% quarter-on-quarter in the same period as Japanese consumers struggled with price hikes on food and household appliances.
5. Crude market weakens
Crude prices weakened Tuesday, as traders attempted to digest both a surprise rate cut by China [see above] as well as weak economic data from the world’s largest oil importer.
Weak industrial production and retail sales data, released late Monday, showed that growth in the second-largest economy in the world slowed further last month, likely reducing demand for crude.
Attention will turn to the U.S. market, with the release of inventory data from the industry group American Petroleum Institute later in the session, as a precursor to official inventory data from the U.S. Energy Information Administration on Wednesday.
The API reported a build of just over 4 million barrels in U.S. crude stocks last week.