The news shaping the markets today

Russia said it was using a new generation of laser weapons in Ukraine to destroy drones to counter Western arms. Supply concerns drove WTI crude prices higher by almost 1% to $110.55 this morning.

Australia’s unemployment rate remained unchanged at 3.9% in April. The latest reading also matched market estimates, sending the AUD/USD pair higher in forex trading this morning.

Japan swung to a trade deficit of ¥839.2 billion in April, versus a year-ago surplus of ¥226.8 billion, exerting pressure on the JPY/USD forex pair.

New Zealand’s producer input prices rose 3.6% in the first three months of the year, versus a 1.2% increase in the prior quarter. Despite this, the NZD/USD pair rose in forex trading this morning.

Sri Lanka’s central bank maintained its key lending and borrowing rates at the latest meeting, following a sharp 700 basis-point increase in April. The LKR/USD forex pair traded sharply lower following the news.

What’s happening: Shares of Target Corporation fell sharply on Wednesday, despite the company reporting strong revenues for the first quarter.

What happened: Target’s shares retreated with investors focusing on the earnings miss.

Covid-19 related disruptions and the ongoing crisis in Ukraine resulted in higher costs, impacting Target’s bottom-line, despite strong revenue growth.

How were the results: The Minneapolis, Minnesota-based company reported stronger-than-expected revenue growth for the first quarter but missed on the earnings front.

• Sales grew 4% year-over-year to $25.17 billion, topping consensus estimates of $24.37 billion.
• Adjusted earnings came in at $2.19 per share, missing Street expectations of $3.07 per share.

Why it matters: Target released downbeat quarterly earnings a day after Walmart missed earnings estimates and lowered its profit forecast. Walmart’s shares staged their steepest decline since 1987 after the earnings call.

Rising fuel and freight costs posed significant challenges for Target’s apparel and home goods. However, the company managed to grow sales, despite the US combating with the highest inflation rate in four decades.

The company’s comparable store sales rose 3.4%, while comparable digital sales climbed 3.2% in the quarter. Sales by stores represented 81.8% of the company’s overall sales, while sales from digital channels contributed 18.2%.

Operating margins contracted from 9.8% to 5.3% in the quarter, taking the company’s operating income lower by 43.3% to $1.3 billion.

“Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” CEO Brian Cornell said during the earnings call.

Management reiterated their revenue growth projection for fiscal 2022 at the low- to mid-single-digit range. However, the company lowered its guidance for annual operating margins to around 6%, from its previous forecast of 8% or higher. Target also said it expects operating margins to remain at approximately 5.3% in the second quarter.

How shares responded: Target’s shares tumbled 24.9% to close at $161.61 on Wednesday, following the release of quarterly results. The stock has tanked more than 30% year to date.

What to watch: Investors will monitor raw material shortages and elevated costs in the current quarter as well as Target’s initiatives to relieve pressure on its profitability.

The markets today

The US dollar will be in focus today ahead of some important economic reports from the country

Context: The greenback moved higher on Wednesday, as traders looked for safe-haven options amid rising concerns about global economic growth and accelerating inflation.

Details: Inflation levels around the world have been rising. The latest data showed UK’s inflation accelerating to its highest annual rate since 1982, while Canada’s inflation rose to 6.8% in April.

The elevated inflation levels are forcing central banks across the globe to raise interest rates. Inflation concerns have been supporting the US dollar among currency investors and traders.

The US dollar also received support from the prospects of aggressive policy tightening by the Federal Reserve, after Jerome Powell said the country’s central bank would raise interest rates as high as needed to counter inflation.

The greenback continued to rise even as the US reported a 0.2% decline in housing starts in April and a 3.2% downturn in building permits. US stocks also traded sharply lower on Wednesday, with the Dow Jones index shedding around 1,165 points amid disappointing earnings results.

The US dollar moved higher on Wednesday, snapping a three-day losing streak. The US dollar index, which measures the greenback’s performance versus a basket of major currencies, gained over 0.4% to close at 103.81.

The dollar also gained versus the euro, taking the EUR/USD forex pair lower by around 0.8% on Wednesday.

What to watch: Traders await the release of economic reports on initial jobless claims and existing home sales from the US today. The number of persons filing new claims for jobless benefits had risen by 1,000 to 203,000 in the week ending May 7 and is expected to decline to 200,000 in the latest week. Existing home sales had declined by 2.7% to an annualised rate of 5.77 million in March and are expected to decline further to 5.65 million in April.

Other Markets: European trading indices closed lower on Wednesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 1.07%, 1.26%, 1.20% and 1.14%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Eurozone’s current account, construction output and ECB monetary policy meeting accounts, Italy’s current account, UK’s CBI industrial trends orders, South Africa’s building plans passed and South African Reserve Bank’s interest rate decision, Canada’s raw materials prices, new home prices and producer price inflation, US Philadelphia Fed manufacturing index, continuing jobless claims, CB leading index and natural gas stocks change, Indonesia’s total car sales, India’s money supply M3, as well as Argentina’s leading economic index, balance of trade and economic activity.

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