Wall Street Breakfast: Retail On The Radar

Nov. 16, 2021 7:08 AM ET54 Comments
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Retail on the radar

Investors are hoping to get a better assessment of the U.S. economy today amid a flurry of data on the retail sector. Walmart (WMT) will kick off a busy week of earnings before the market opens, giving some insight into what executives have to say about the all-important holiday season. Home Depot (HD) will also report on same-store sales, while commenting on how it's countering supply chain disruptions to keep up with strong building demand.

Rest of the story: Providing the best picture on the macro landscape, the U.S. Census Bureau is scheduled to release its retail sales report at 8:30 a.m. ET. A strong print could signal that the economy is back on track, with expectations of a 1.2% gain or more (compared to 0.7% in September). The figure likely benefited from rising gasoline prices and early holiday shopping, though a miss could prompt renewed fears of stagflation.

"What it tells us is whether there's momentum that was restored at the end of the third quarter and heading into the fourth quarter, we're in pretty good shape," said Barclays chief U.S. economist Michael Gapen. "It would be another data point that confirms the soft patch story rather than the slowdown."

Outlook: The October retail sales report will be one of the earliest clues about the readings for fourth-quarter gross domestic product after the figure dwindled to a 2% pace in Q3. It also follows a strong jobs report with 531K payrolls added in October. However, inflation is an area that has received a lot of attention recently, and the retail sales number could highlight further price pressures, bringing forward expectations for a coming rate hike.

Virtual summit

During a meeting on Monday night that lasted more than three hours, President Biden and China's Xi Jinping looked to reduce the tensions that have marked the relationship since January, while opening the road for more dialogue. No major resolutions were produced from the gathering, but that was expected, as the White House said the discussion would center around "ways to manage the competition between the U.S. and China responsibly." Other attendees at the meeting included Treasury Secretary Janet Yellen, Secretary of State Antony Blinken and National Security Advisor Jake Sullivan.

Quotes: "Our responsibility as leaders of China and the United States is to ensure that the competition between our countries does not veer into conflict, whether intended or unintended," Biden said to his counterpart via video, while Xi responded in a similar fashion. "China and the United States should respect each other, coexist in peace and pursue win-win cooperation. I stand ready to work with you, Mr. President, to build consensus, take active steps and move China-U.S. relations forward in a positive direction."

While many topics were discussed, such as human rights, climate change and Taiwan, investors honed in to what the world's biggest economies said about trade and the business landscape. Biden underscored the importance of China fulfilling its Phase 1 trade deal commitments, after other concerns were flagged last week, like the impact of China's "extremely robust and very effective industrial policies on our ability to grow and thrive." The White House also painted Biden coming into the summit with a strong hand after the signing of a major infrastructure bill that "will boost America's competitiveness with China."

Analyst commentary: "Stability is the name of the game here," said Ben Harburg, managing partner at MSA Capital. "Critical to establishing that structure is placement of guardrails to reduce these risks of the economic relationship and global stability. American and Chinese businesses are looking for a more clear framework under which they are able to operate independently of the political dynamic."

Crypto slide

Bitcoin (BTC-USD) tumbled as much as 10% overnight to below $60,000 amid broad losses in the crypto sector. In fact, the global crypto market cap fell 7% in the past 24 hours to $2.8T, according to tracker CoinGecko. Possible catalysts?

New tax reporting requirements: "We've seen the U.S. infrastructure bill get signed, which has initiated a selloff from traders who are concerned about regulation and taxation [for digital currencies]," noted Hayden Hughes, CEO of crypto strategy platform Alpha Impact.

Another broad crackdown: China is studying the option of levying punitive power prices for companies that are involved in cryptocurrency mining, National Development and Reform Commission spokeswoman Meng Wei announced at a press conference.

Trading patterns: It "would be unusual to keep moving up without corrections," said Vijay Ayyar of crypto exchange Luno, adding that investors are seeing a "healthy pullback" after a sustained rally.

Sector news: Riot Blockchain (NASDAQ:RIOT) slid 8% AH after announcing financial results for Q3. The SEC also issued a subpoena for Marathon Digital's (NASDAQ:MARA) mining facility in Montana.

Go deeper: The retreat comes a week after Bitcoin notched a fresh record high of $68,990.90 on Nov. 10, which also helped other cryptos, like Ether (ETH-USD), reach all-time highs.

Shedding Dutch identity

Royal Dutch Shell (RDS.A, RDS.B) has unveiled plans to streamline its structure, discarding its dual-share system in favor of a single line of shares. It would also shift its headquarters from the Netherlands to the U.K., aligning Shell's tax residence within its country of incorporation.

Snapshot: While the shuffle was described as a simplification of corporate structure - giving it more autonomy over things like dividends and share buybacks - there can be a broader move at play. Back in May, a Dutch court ruled that the company must reduce its carbon emissions by 45% by 2030 (compared with 2019 levels), essentially setting corporate strategy for the company. While Shell has said the ruling wasn't the reason for its choice to relocate, it may have helped in the decision-making process.

Shell has also been under pressure from activist investor Third Point, which feels that the energy giant should split into separate fossil fuels and renewables businesses to pave the way for a cleaner future. While Shell has faced calls to simplify its structure for years, the latest decision could be a signal that Shell will have to do more in the coming years with regards to the energy transition.

Future moniker: The relocation would result in a name change to just "Shell," dropping the "Royal Dutch" designation it has held for more than 130 years. Shell's plan would also mark the first major change to its structure since 2005, when it unified its two legacy businesses under a single parent company. The proposal will be put to shareholders at a general meeting on Dec. 10.

Today's Markets

In Asia, Japan +0.1%. Hong Kong +1.3%. China -0.3%. India -0.7%.
In Europe, at midday, London +0.1%. Paris +0.3%. Frankfurt +0.3%.
Futures at 6:20, Dow -0.1%. S&P -0.1%. Nasdaq -0.1%. Crude +0.4% at $81.21. Gold +0.6% at $1876.80. Bitcoin -9.3% at $59855.
Ten-year Treasury Yield -2 bps to 1.6%

Today's Economic Calendar

8:30 Retail Sales
8:30 Import/Export Prices
8:55 Redbook Chain Store Sales
9:15 Industrial Production
10:00 Business Inventories
10:00 NAHB Housing Market Index
12:00 PM Fed's Bostic: “Racism and the Economy: Focus on Financial Services event”
2:55 PM Fed's Harker Speech
3:30 PM Fed's Daly Speech
4:00 PM Treasury International Capital

Companies reporting earnings today »

What else is happening...

Morgan Stanley says avoid U.S. stocks and bonds in 2022.

Permian oil production poised to reach record monthly high - EIA.

Republican-sponsored marijuana bill formally introduced in the House.

Lucid (NASDAQ:LCID) tops 13K vehicle reservations, confirms production plans.

AMC (NYSE:AMC) to accept Shiba Inu (SHIB-USD) for payment within 120 days.

Casper Sleep (NYSE:CSPR) taken private by Durational Capital Management.

Costs on the rise... Tyson Foods (NYSE:TSN) latest to raise meat prices.

Oatly (NASDAQ:OTLY) sinks after guidance comes in below expectations.

Burger King parent (NYSE:QSR) downs sandwich chain Firehouse Subs for $1B.

13F: Berkshire (NYSE:BRK.B) adds Royalty Pharma (NASDAQ:RPRX), exits Merck (NYSE:MRK).

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