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Walmart to report; Capital One, Discover Financial tie-up - what's moving markets

February 20, 2024 4:31 AM

Investing.com -- U.S. stock futures inch lower on Tuesday, pointing to a negative opening for markets as investors return to their desks following the Presidents' Day holiday. Corporate earnings are set to be in the spotlight, with results due out from big-box retailers Walmart (NYSE: WMT) and Home Depot (NYSE: HD). Elsewhere, Capital One and Discover Financial agree to a merger worth more than $35 billion that would create a U.S. credit card titan.


1. Futures lower


U.S. stock futures edged down on Tuesday, as investors prepared for a raft of key corporate earnings this week.


By 02:52 ET (07:52 GMT), the Dow futures contract had shed 87 points or 0.2%, S&P 500 futures had dipped by 10 points or 0.2%, and Nasdaq 100 futures had fallen by 34 points or 0.2%.


Stock markets in New York were closed on Monday for the Presidents' Day holiday. In the final session of last week, the main indices slipped, weighed down by a spike in Treasury yields following a hotter-than-anticipated producer price index that further pushed back bets for the timing of a potential interest rate cut by the Federal Reserve.


Fed officials also expressed caution on Friday, with San Francisco Mary Daly in particular flagging that there is still "more work to do" to bring inflation back down to the U.S. central bank's 2% target.


2. Walmart, Home Depot to report


Major retailer Walmart Inc is due to report its fourth-quarter earnings before the market opens on Tuesday.


The low-cost retailer is usually seen as a key gauge of strength in U.S. consumer spending, which in turn is closely tied to the outlook for inflation.


While consumer spending has eased steadily in recent months due to pressure from sticky inflation and high interest rates, Walmart has still clocked steady earnings growth in recent quarters.


Fourth-quarter results are also expected from Walmart peer Home Depot. In the prior three-month period, the DIY chain narrowed its full-year sales outlook, a cautious approach fueled by signs that inflation-squeezed customers were paring back expenditures on big-ticket items. But the company noted that its post-pandemic operations were beginning to normalize.


Later in the week, eyes will shift to chipmaker Nvidia (NASDAQ: NVDA), as markets hope to receive hints about the path ahead for a recent spike in demand for artificial intelligence.


3. Capital One to buy Discover Financial in $35.3 billion deal


U.S. consumer lender Capital One and smaller peer Discover Financial have agreed to merge in an all-stock deal worth $35.3 billion, the companies announced on Tuesday.


The tie-up would create the sixth-largest U.S. bank by assets and major American credit card group that could rival industry behemoths like Citigroup and JPMorgan Chase (NYSE: JPM). Crucially, the move would bring together Discover's vast payments network and Capital One's popular credit card business.


However, the merger is still expected to face heavy scrutiny from U.S. regulators who will be keen to make sure it benefits customers. In a statement, the firms said that the merger will create "scale and investment," as well as "signficant value" for consumers.


Under the terms of the agreement, Berkshire Hathaway-backed Capital One would value Discover at a stock price of almost $140, a 27% premium compared to its closing level on Friday. Discover stakeholders would receive 1.0192 Capital One share for each Discover share.


4. China's central bank slashes mortgage lending rate


The People’s Bank of China cut its five-year benchmark loan prime rate (LPR) by a bigger-than-expected margin on Tuesday, loosening monetary conditions further in a bid to support the country's ailing property market.


The PBOC cut its five-year LPR, which is used to determine mortgage rates, to 3.95% from 4.20%. Analysts had expected a reduction of 10 basis points to 4.10%. The one-year LPR was left unchanged at 3.45%.


The decision was somewhat unexpected, particularly after the central bank kept medium-term lending rates unchanged over the weekend. But steadily worsening economic conditions in China, along with a continued slide in the property sector, had seen some investors positioning for more monetary easing in the country.


5. Oil prices subdued


Oil prices were muted in early European trade on Tuesday, as markets weighed a weak outlook for demand against possible supply disruptions stemming from worsening geopolitical conditions in Russia and the Middle East.


A dearth of major cues also made for little price action. By 02:53 ET, Brent oil futures expiring in April were mostly unchanged at $83.55 a barrel, while West Texas Intermediate crude futures were largely flat at $78.43 per barrel. Both contracts were close to a three-week high.


A strong run-up over the past two weeks in oil prices has appeared to have largely stalled in recent sessions, in a sign of growing pessimism over the outlook for demand.


Hot U.S. inflation data has led many traders to further price out the prospect of early interest rate cuts by the Fed, while the International Energy Agency warned of slowing global crude demand in the coming year. Fourth-quarter recessions in the U.K. and Japan have also contributed to a souring in demand expectations.

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