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Walmart’s stock rises despite cautious guidance

 

Wednesday, February 22, 2023

The news shaping the markets today

The Wall Street Journal reported that China’s leader Xi Jinping is looking to visit Russia for a summit with President Vladimir Putin in April or early May. The safe-haven US dollar index fell this morning.


Australia’s Westpac-Melbourne Institute Leading Economic Index declined 0.1% in January, following a 0.2% decline in the previous month, which exerted pressure on the AUD/USD forex pair.


New Zealand’s central bank hiked its official cash rate by 50bps to 4.75%, the highest level since January 2009, sending the NZD/USD pair higher in forex trading this morning.


Japan’s Reuters Tankan sentiment index for manufacturers came in unchanged at -5 in February, lending support to the JPY/USD forex pair.


US S&P Global manufacturing PMI rose to 47.8 in February, from 46.9 in the previous month. However, the country’s factory activity remaining in the contraction zone for the fourth consecutive month sent the Dow Jones index lower by around 700 points on Tuesday.

 

What’s happening: Shares of Walmart edged higher on Tuesday, after the company reported results for its fourth quarter.

What happened: The world’s largest retailer reported earnings that topped market expectations on Tuesday.

With inflation remaining high, Walmart issued a cautious profit forecast for the full year.

How were the results: The Bentonville, Arkansas-based company reported single-digit growth in sales for the three months ended in December.

  • Sales grew 7.3% year-over-year to $164 billion, beating the consensus estimates of $159.8 billion.
  • Adjusted earnings rose by 11.8% year-over-year to $1.71 per share, exceeding Wall Street expectations of $1.51 per share.

Why it matters: Rising consumer prices in the US have fuelled concerns around the Federal Reserve continuing with interest rate hikes, which could cool demand and lead to a slowdown in the economy in the second half of the year.

Walmart, which operates over 5,000 stores in the US, is looking to secure better prices from suppliers to avert competition from peers.

Net sales from Walmart US rose 8.0% year-over-year during the quarter, while Walmart International and Sam’s Club rose 2.1% and 11.3%, respectively.

Consolidated gross profits narrowed 83 basis points in the fourth quarter as consumers spent less on discretionary products and more on low-margin items. The company held cash and equivalents worth $8.9 billion.

Walmart increased its annual cash dividend by 2% to $2.28 per share for fiscal 2024.

Management guided to net sales growth of 4.5%-5.0% and adjusted earnings of $1.25-$1.30 per share for the first quarter, below the consensus estimates of $1.36 per share. Walmart also projected net sales growth of 2.5%-3.0% and adjusted earnings of $5.90-$6.05 per share for the full year, lower than market expectations of $6.50 per share.

How shares responded: Walmart’s shares gained 0.6% to close at $147.33 on Tuesday, following the release of quarterly results. The stock has added around 9% over the past six months.

What to watch: Investors will keep an eye on inflation levels in the US and rising competition in the retail sector.

The markets today

Crude oil will be in focus today after edging lower on Tuesday

Context: WTI crude oil settled slightly lower on Tuesday in a volatile session, as traders assessed the global demand outlook.

Details: In early trading on Tuesday, crude oil received some support from growing demand in China.

However, WTI crude oil settled slightly lower after remaining volatile for most of the session, as traders continued to focus on further monetary tightening by major central banks, including the US Federal Reserve. Crude prices are on course to end the month in the red.

Russia announced plans to reduce oil production by 500,000 barrels per day in March. However, Commerzbank analysts said Russia’s crude exports had jumped by 26% to 3.6 million barrels per day last week, which limited the overall gains in crude prices.

WTI crude oil for March delivery slipped 18 cents to close at $76.16 per barrel on the NYMEX on Tuesday. Brent crude for April slipped $1.02 to settle at $83.05 per barrel on ICE Futures Europe, after gaining around 1.3% in the previous session.

In other commodities trading, March gasoline gained 1 cent to reach $2.42 a gallon on Tuesday. March heating oil climbed 8 cents to $2.78 a gallon, while March natural gas declined by 20 cents to $2.07 per million British thermal units, recording losses for the fourth consecutive session.

What are expectations: Traders await the release of API’s (American Petroleum Institute) data on crude oil stockpiles in the US, which had risen by 10.507 million barrels in the week ended February 10, after a decline of 2.184 million barrels in the prior week.

Other Markets: US trading closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 2.06%, 2% and 2.41%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY  – 134.79 and 134.99 Negative
GBP/USD – 1.2115 and 1.2124 Positive
Platinum – 942.75 and 945.30 Positive
Gold  – 1843.81 and 1845.66 Positive
Nikkei 225 – 27115.16 and 27158.16 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0660, 0.12%) Dow ($33,223, 0.18%) Brent ($83.12, 0.1%)
GBP/USD (1.2119, 0.07%) S&P500 ($4,015, 0.22%) WTI ($76.42, 0.1%)
USD/JPY (134.87, -0.11%) Nasdaq ($12,136, 0.33%) Gold ($1,846, 0.2%)

What else to watch today

Germany’s inflation rate, Ifo business climate indicator, Ifo current conditions indicator and Ifo expectations indicator, Turkey’s manufacturing confidence index and capacity utilization, France’s manufacturing climate indicator and business climate indicator, ECB’s non-monetary policy meeting, Italy’s consumer price inflation and construction output, India’s monetary policy meeting minutes and money supply M3, US MBA mortgage applications, Redbook index and FOMC minutes, Canada’s new housing price index, Argentina’s Leading economic index and balance of trade, as well as Russia’s producer prices and industrial production.


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