US Open: A busy Tuesday, Putin vows to continue War, Weak outlooks from retailers, Walmart, Home Depot, Oil struggles, Gold lower ahead of Fed, Bitcoin resilience

US stocks are declining after retail earnings suggest margin worries are here and it will only get worse as the Fed is likely to deliver more tightening into early summer. Treasury yields are surging here as a tight labor market will force the Fed to do more tightening.  Retailer earnings are suggesting it is going to be a tough year ahead and that should keep the pressure on stocks. 

Geopolitics

Russia’s Vladimir Putin’s State of the Union speech suspended participation in a key nuclear arms pact with the US.  Putin said, Russia will suspend participation with the new START treaty and that they would test nuclear weapons if the US does it first. Putin’s speech comes three days before the one-year mark of the Russian invasion of Ukraine. He added that Russia will push farther if longer-range arms are supplied. Ukrainian officials have voiced their concerns that they expect the Russians to increase their offensive. 

China

China is also pushing back against calls that say Taiwan is next.  China Foreign Minister Qin Gang said, “We urge certain countries to immediately stop fueling the fire, stop shifting blame to China and stop touting Ukraine today, Taiwan tomorrow.” China’s economic outlook if fragile right now and they are trying to avoid any major obstacles as their reopening from COVID continues.

Home Depot

Home Depot shares tumbled after a tight labor market is making them invest an additional ~$1 billion in annualized compensation for frontline, hourly associates. Wall Street initially could only focus on the added expenses and not the mixed earnings and dividend boost.  While most companies are announcing cost-saving measures, Home Depot is in position that will require them to spend more. 

The EPS beat of 3 cents and slight revenue miss of $35.83 billion was accompanied by comparable sales of -0.3%, not as bad as the consensus estimate of -0.87%.  The world’s largest home improvement retailer is going to have a margin problem over the couple of quarters and that could get uglier if the housing market does not bottom out soon. 

Walmart

Walmart shares tumbled despite a top and bottom line beat as their EPS guidance fell short of the analyst estimates.  Walmart’s earnings slides noted that “general merchandise sales reflected softness in discretionary categories including toys, electronics, home, and apparel.”

Walmart’s poor outlook after a strong holiday season is having many investors abandon ship here as rough waters are clearly ahead.  Walmart had the largest sales volume in its history in December.

Oil

Crude prices are struggling as global growth concerns return after soft European manufacturing activity data is accompanied with a surge in global bond yields. Central banks globally are about to take policy into even more restrictive levels and that is countering China’s reopening momentum. WTI crude is finding a home between the mid-$70s and the $80 a barrel level.     

Gold/FX

Gold prices are weakening as investors await the Fed Minutes that could confirm the bank has more work to do. The dollar is getting a bid here as more traders start to price in 75 basis points in more tightening by the Fed.

If the bond market selloff gets uglier, gold might soften more, but it probably won’t drop as much as equities.  Rising geopolitical risks will likely drive some flows towards bullion and Wall Street is getting close to pricing in peak Fed tightening. 

Bitcoin

Bitcoin traders appear to be ignoring a laundry list of bearish macro drivers that include; a return of the stronger dollar as the bond market rally returns, downward pressure on stocks as investors price in more Fed rate hikes, and on worries that stablecoin regulation could put further pressure on cryptos.  It appears that Bitcoin’s correlation with most risky assets is changing.  The crypto winter that saw prices collapse from $68,911 to $15,485 appears to have priced in enough of the bad news. 

Bitcoin is still respecting the key $25,500 level, but a break could open the door for momentum traders to target a bigger move higher. Initial resistance would come from the $28,000 level, but most traders may have their eyes for the psychological $30,000 level. 

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