Retail earnings unable to boost stocks, UK inflation hits highest level since 2011, target earnings, mixed housing data, bitcoin hovers ~$60K

Decent retail earnings were unable to send US stocks back into a record-setting mode as cost pressures remain elevated for the foreseeable future. The S&P 500 index looks like it is going to be stuck in a range until investors feel confident that the Fed didn’t make a policy mistake and won’t be forced to raise rates sooner.

Another round of Fed speak from Williams, Waller, and Mester did not provide any shifts over where the board stands on inflation.

It wasn’t pretty, but the 20-year auction performed better than last week’s disappointing 30-year sale.  The 10-year Treasury yield dipped to session lows after the decent 20-year sale, down 3.3 basis points to 1.601%.

FX

The British pound was the second strongest currency next to the yen as pressure for BOE tightening grew after UK inflation hit the highest levels in a decade. Inflation is getting worse for the UK and given their inability to store gas, the economy is extremely vulnerable to surging natural gas prices. Inflation expectations are for higher prices over the coming months so that should raise expectations for a December rate hike by the BOE.

Target

The bar may have been too high for big-box retailers. Target delivered decent results but fell short of impressing the street. Target posted a 20-cent earnings beat, better-than-expected revenue by a billion dollars.  Third-quarter operating margin came in at 7.8%, lower than the 8.5% seen a year ago.

Walmart and Target have had good runs since March, but margin pressure is only going to get worse over these next few months and that has some investors rotating out of retail despite what is expected to be a very strong holiday season.

Housing

Housing starts unexpectedly dipped in October, but the market still remains strong as building permits increased 4.0% to 1.650 million units.  US homebuilding is still battling higher material costs and labor shortages.  Demand is still strong for homes despite elevated lumber and copper prices. If Treasury yields continue to rise, that could be the catalyst to cool the hot housing market.

Bitcoin

Bitcoin continues to consolidate around the USD 60,000 level as other parts of the cryptocurrency world grapple with the SEC probes.  BlockFi and other high-yielding crypto accounts may seem to be good to be true for many on Wall Street.  Given cryptocurrency performance dominance over the past few years, several lending products have provided very lucrative products that will likely go through the ringer.

Bitcoin’s long-term outlook remains bullish, but the waters over the next few months will be rough as institutional investors look to see if the Fed will be forced to raise rates sooner and trigger a broad-based selloff of risky assets that include bitcoin.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya