Marketmind: Which earnings to the rescue?

A look at the day ahead from Danilo Masoni.

Traders have sold the latest rally, and savagely, tipping world equities back on the brink of confirming a bear market pattern. And the fear behind the rout is that the support which strong earnings have provided so far against pressure from rising rates is starting to dwindle.

Big-box retailers on Wall Street showed the world how painful inflation and supply chain problems can be, while adding to concerns that the American consumer who powers the world’s top economy might not be in as strong shape as thought. That sent investors rushing for the exit.

The S&P 500 fell 4% in its biggest drop since June 2020 as retail giant Target tanked 25% after warning of a bigger margin hit due to rising fuel and freight costs. The day before rival Walmart trimmed its profit forecast.

The sour mood spilled over to Asia and Europe too looks set to extend Wednesday’s losses, although the safe-haven dollar eased and riskier currencies like the Aussie jumped as Shanghai set out plans to end a COVID lockdown.

Meantime, early signs of “capitulation” among retail traders have emerged, according to Vanda Research, which cited put option trading near record highs and Charles Schwab net assets suffering outflows for the first time since 2020.

Against this backdrop energy and commodities feature amongst the rare safe harbours. Brent crude is rising 1% back above $110, and Europe’s energy index struck a fresh three-year high on Wednesday, escaping the stock market battering.

Key developments that should provide more direction to markets on Thursday:

* Japan’s exports extended double-digit gains for a thirdstraight month in April. * Speaker’s corner: BoE’s head of Financial MarketsInfrastructure, Christina Segal-Knowles, ECB Vice-president Luisde Guindos * Central bank meetings: South Africa, Egypt, Philippines * U.S. initial jobless claims/Philly Fed index * US 10-year TIPS auction * Earnings: Generali, Investec, Royal Mail, Kohl’s

(The story refiles to fix chart.)

(Reporting by Danilo Masoni)