Coffee With Greta: Inflation Wrecks Target

Editor's Note: Coffee With Greta is a FREE morning update from our newest contributor Greta Wall. Want to get it by email every day? Click here.

********

DJIA Futures: -184 (-0.6%)

SPX Futures: -32 (-0.8%)

NASDAQ Futures: -144 (-1.1%)

Good morning friends!

Futures are lower following disappointing retail earnings.

Let’s get right to it!

Target Craters On Big Earnings Miss

Target (TGT) shares are plunging 24.2% ahead of the open after sharply missing Q1 expectations. 

The retailer reported adjusted earnings of $2.19 per share on $25.17 billion in revenue. 

EPS came in below the $3.07 consensus but the revenue number beat estimates of $24.49 billion. 

Comparable sales rose 3.3% year over year, better than expectations for a 0.8% gain. 

Profits plummeted 41% compared to a year ago.

Target’s CEO Brian Cornell blamed the profit miss on “unusually high costs”.

Those challenges included inventory that arrived too early or too late, employee compensation, more employees at distribution centers, and changing merchandise sales. 

Target was also hit by higher freight costs as gas prices jumped, those issues are expected to be worse in Q2.

The company reiterated its full-year forecast for revenue growth in the mid single-digits but did not provide earnings guidance.

Lowe’s Dips On Revenue Miss

Lowe’s (LOW) shares are down 4% in premarket trade after missing Q1 sales expectations. 

The home improvement retailer reported earnings of $3.51 on $23.66 billion in revenue.

That was better than analysts’ expectations for EPS of $3.22 but missed estimates for $23.76 billion in revenue.

Lowe’s CEO said sales in its outdoor seasonal categories “were impacted by unseasonably cold temperatures in April.”

He said the company has already seen improvement in May.

Same-store sales were down 4% year over year, worse than expectations for a 2.5% drop.

Lowe’s reiterated its full-year outlook for revenue to range between $97 billion and $99 billion.

Housing Starts, Building Permits Slump

U.S. homebuilding slowed unexpectedly in April. 

The Census Bureau reported housing starts fell 0.2% to a seasonally adjusted annualized rate of 1.72 million units. 

That missed economists’ expectations for starts to rise to a SAAR of 1.75 million units. 

Building permits also tumbled but were in line with expectations. 

The number of new permits issued last month dropped 3.2% to a SAAR of 1.82 million units. 

The data is indicative of a new home market that is struggling amid surging material costs and falling demand due to rising mortgage rates.

Weekly Mortgage Demand Tumbles

Mortgage demand fell last week even as rates cooled a bit. 

The Mortgage Bankers Association says purchase applications fell 12% weekly and dropped 15% year over year. 

That was the first weekly drop since the third week in April.

Refinance applications fell 10% weekly and were down 76% compared to a year ago.

The average 30-year contract rate actually decreased to 5.49% from 5.53%, but those rates are still sharply higher than even a few months ago. 

Adjustable-rate mortgages made up 10.5% of all applications, up from about 3% at the start of the year.

Oil Prices Rise On China Demand Optimism

Oil prices are rising on optimism that easing Covid restrictions in China will boost demand. 

West Texas Intermediate crude futures are up 2.2% to $115 bbl while Brent crude futures are up 1.6% to nearly $114 bbl.

Shanghai, China has had three consecutive days of no new Covid cases outside quarantine zones. 

Authorities allowed 864 of the city’s financial institutions to resume work Wednesday.

The American Petroleum Institute reported Tuesday that U.S. crude inventories fell by 2.4 million barrels last week. 

Gasoline inventories declined by 5.1 million barrels.

The Energy Information Administration reports official inventory data today.

The EIA report is expected to show a 2.1 million barrel increase in crude inventories and a 100,000 barrel decline in gas stockpiles.

U.S. Gas Prices Hit New Record

Average gas prices in the U.S. jumped more than 4 cents overnight. 

AAA shows the national average for a gallon of regular rose to $4.567 today, a new record for the ninth straight day. 

Diesel jumped to a fresh record $5.577/gal.

Analysts say U.S. households are now spending $5,000 a year on gas. 

That’s up sharply from $2,800 a year ago. 

In March, the annual rate of spending on gas was at just $3,800.

Powell: Fed Won’t Hesitate to Move Rates Past Neutral

Fed Chair Jerome Powell told the Wall Street Journal Tuesday that the bank is committed to doing whatever it takes to tackle inflation. 

Powell said, “If that involves moving past broadly understood levels of neutral we won’t hesitate to do that”.

He said the Fed’s goal is to reach “a place where we can say financial conditions are in an appropriate place, we see inflation coming down. We’ll go to that point. There won’t be any hesitation about that.”

The Fed Chair also warned those efforts do have the potential to cause a recession but said “there are a number of plausible paths to have a soft as I said softish landing. Our job isn’t to handicap the odds, it’s to try to achieve that.”

CME Group’s FedWatch Tool shows 87% of traders expect a 0.5% rate hike at the June meeting after Powell previously said a 0.75% was not on the table.

13% of traders are still betting on a 75-basis point hike.

Elon Musk Wants SEC Investigation of Twitter’s Fake User Claims

Elon Musk escalated his dispute with Twitter (TWTR) over the number of fake users on the platform Tuesday. 

Musk responded to a tweet that said, “The SEC should investigate” whether Twitter’s estimates about fake users are true. 

In response, Musk tweeted “Hello @SECGov, anyone home?”

Twitter shares have been tumbling as investors sell the stock in fear Musk will abandon his $44 billion deal to take the company private. 

TWTR is down 1.1% ahead of the open.

The stock has given up all of its gains since Musk originally unveiled his stake in the company on April 4.

In Case You Missed It

• The National Association of Homebuilders sentiment index tumbled more than expected in May. The survey dropped 8 points to 69 vs expectations for 75. It was the lowest reading since June 2020 as builders struggle with high material costs and rising mortgage rates. Sentiment about current sales conditions fell 8 points to 78 while 6-month sales expectations tumbled 10 points to 63. 
• Netflix (NFLX) is laying off about 150 employees as the company continues to lose subscribers. CNBC confirmed the layoffs Tuesday, which represent less than 2% of Netflix’s 11,000 staff members. A company representative said, “As we explained on earnings, our slowing revenue growth means we are also having to slow our cost growth as a company”.