Investors short Walmart despite sales beat

The news shaping the markets today

Russia said that 265 Ukrainian soldiers had surrendered at the Azovstal steel plant in Mariupol. The RUB/USD forex pair, meanwhile, traded higher this morning.

China’s new home prices rose by 0.7% year-over-year in April, following a 1.5% rise in the previous month. The country recording its the lowest increase in home prices since October 2015 exerting pressure on the CNY/USD forex pair.

Australia’s Westpac-Melbourne Institute Leading Economic Index eased 0.2% from a year ago in April, following 0.3% growth a month ago, which sent the AUD/USD pair lower in forex trading this morning.

Japan’s economy shrank 1.0% on an annualised basis in the first quarter, versus 3.8% growth in the previous quarter. However, the latest reading came in better than market expectations of a 1.8% contraction, lending support to the JPY/USD forex pair.

The Central Bank of Uruguay raised its benchmark policy rate by 75 bps to 9.25% at its latest meeting, following a 125 bps increase in the previous month. The UYU/USD pair rose in forex trading this morning.

What’s happening: Shares of Walmart tumbled on Tuesday, even after the company reported upbeat revenues for its first quarter.

 What happened: Investors grew concerned about rising fuel and labour costs resulting in a 25% decline in Walmart’s quarterly earnings and forcing management to reduce their full-year profit forecast.

Walmart’s shares recorded their biggest single-day percentage decline since February 2018, despite the company raising the forecast for one of its key metrics.

How were the results: The Bentonville, Arkansas-based retailer reported growth in sales, exceeding market views.

• Revenues grew 2.4% year-over-year to $141.6 billion, beating the consensus estimate of $138.88 billion.
• Adjusted earnings came in at $1.30 per share, missed market expectations of $1.48 per share.

Why it matters: This was the first time in the past five quarters that the company missed earnings estimates. Investors consider Walmart’s earnings as an important barometer of the health of the US economy, as it is the largest retailer in the country, with over 5,000 stores.

Walmart US same-store sales grew 3.0% year-over-year, with ecommerce sales rising 1% amid higher sales of health and food products. Comp sales of Sam’s Club surged 10.2% during the quarter.

The company’s operating margins came in at 3.7%, while operating income contracted by 23% to $5.3 billion. Walmart held cash and equivalents worth $11.8 billion as of April 30, 2022.

“Bottom line results were unexpected and reflect the unusual environment. U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected,” Walmart CEO Doug McMillon said during the earnings call.

Walmart lowered its earnings growth forecast for the second quarter to “flat to up slightly,” from its previous projection of low-to-mid single-digit growth.

Management also warned of a 1% decline in earnings in fiscal 2022, versus their earlier indication of mid-single-digit growth. However, the company raised its sales growth guidance for fiscal 2023 from 3% to 4% in constant currency terms.

 How shares responded: Walmart’s shares tanked 11.4% to close at $131.35 on Tuesday, following the release of quarterly results. The stock has lost more than 9% year to date.

What to watch: Investors will monitor accelerating inflation trends in the US economy, which could further impact the company’s overall margins in the second quarter.

The markets today

The British pound will be in focus today ahead of a basket of economic reports from the country

Context: The sterling climbed to its strongest level since May 5 on Tuesday, with investor sentiment being supported by the release of strong labour data.

Details: UK’s unemployment rate fell to 3.7% in the first three months of the year, from 3.8% in the previous quarter. This marked the lowest reading since 1974. Employment in the country surged by 83,000 in the three months, easily beating market expectations of 5,000 job adds.

Total pay rose by 7.0% from a year ago to £615. This also represented a 5.6% increase from the previous quarter. However, labour productivity fell by 0.7% on quarter.

Labour data coming in better than expected supports expectations of the Bank of England raising increase rates further to combat rising inflation levels. Market experts projected another 25 bps rate hike at the central bank’s meeting in June. The BoE is widely expected to raise interest rates by 122 basis points by the end of the year.

The GBP/USD forex pair gained more than 1.4% to close at 1.2496 on Tuesday, after hitting its strongest level since May 5 earlier in the session. London’s FTSE 100 added 0.72% to close at 7518.35, recording gains for the third consecutive session.

 What to watch: Investors await the release of economic reports on inflation, retail price index and producer prices from the UK today. UK’s annual inflation rate, which accelerated to 7% in March (the highest since March 1992), is expected to increase further to 9.1% in April. Factory gate prices of goods produced by UK manufacturers had jumped 11.9% from a year ago in March and is projected to grow by 12.5% in April.

 Other Markets: US indices closed higher on Tuesday, with the Dow Jones, S&P 500 and Nasdaq 100 up by 1.34%, 2.02% and 2.62%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Eurozone’s inflation rate, consumer price index, European Union new passenger car registrations and ECB non-monetary policy meeting, South Africa’s inflation rate and retail sales, US MBA mortgage applications, housing starts, building permits, crude oil inventories, gasoline inventories, heating oil stocks, distillate stockpiles and Cushing crude oil stocks , India’s money supply M3, Canada’s inflation rate, as well as Russia’s gross domestic product.