Geoffrey Smith 

Investing.com – More earnings from big U.S. retail stores, confirming the messages that were sent Tuesday by Walmart (NYSE): European Central Bank might be considering a 50 basis points increase in its key rates in July. Meanwhile, the pound falls after inflation reaches a 40-year high. All this while the U.K. is on the edge of declaring war against the EU. After another solid inventory report, oil prices continue to rise. JPMorgan’s shareholders (NYSE:) believe Jamie Dimon is rich enough. This is what you should know about financial markets Wednesday 18th May.

1. Retail earnings

The retail sector’s earnings were the focus of Tuesday’s surprising strong April retail sales report.

Target (NYSE:) and TJX (NYSE:) will report before the open, and will all be scanned for corroboration of Walmart’s gloomy predictions. Lowe’s (NYSE:) has a higher bar to jump over, given that rival Home Depot’s report suggested that the home improvement boom still has some legs left despite signs that the housing market is cooling.

On the subject of which – April’s housing starts and building permits are due at 8:30 AM ET (1230 GMT), while weekly updates on mortgage rates and applications are due at 7 AM.

2. ECB expectations shift

As money markets increased their expectation for an increase in interest rates from the ECB, euro held at $1.05 After Klaas Knot of the Netherlands, a well-known hawk on Tuesday suggested that Frankfurt might see 100 basis points tightening, short-term interest rate futures reflect this expectation.

Bank of Finland Governor Oli Rehn also said on Wednesday that the ECB should get its key rate above zero “relatively quickly”, adding that many ECB board members feel the same way.  

The Eurozone’s CPI was revised down a touch to 7.4% in April, while the rate of inflation excluding food and energy was confirmed at 3.9%. However, the dangers of a sudden economic slowdown are also evident as EU car registrations fell by 20.6% compared to April 2011. They’re down 14.4% year-to-date.

3. Stocks are taking a rest after rally. JPMorgan shareholders rejected the Dimon pay package

The U.S. stock market is expected to open lower on Wednesday, reversing some sharp gains from Tuesday. This was because Jerome Powell (Federal Reserve Chair) decided not to take a more hawkish stance in light of the Retail Sales Report.

By 6:35 AM ET, the points were down by 86 or 0.3%. They were also down 0.4% and 0.7%.

Companies reporting earnings after the retailer are included. Analog Devices Experian and (NASDAQ:), while Cisco (NASDAQ;) reports the largest company after-hours.

Other stocks likely to be in focus are Twitter (NYSE:) (again), after it said it intends to hold Elon Musk to his legal commitments regarding the leveraged buyout offer of $54.20 a share, and JPMorgan, after shareholders passed a non-binding motion rejecting CEO Jamie Dimon’s bumper pay package awarded last year.

4. As the U.K. inflation rises, Sterling suffers. Brexit worries are revived

The pound struggled again as a 40-year high in inflation combined with revived fears of a trade war with the EU to cast further gloom over the U.K.’s economic outlook.

A rise in VAT and regulations on household energy bills led to the expected increase in inflation, which was 9.0%. However, concern is mounting at the risk of the EU imposing tariffs on U.K. imports and restricting access to the single market for key services sectors – including finance, after the U.K. government formally announced its intention to make unilateral changes to protocols in the Brexit deal. The U.K. would like to eliminate customs controls on goods between Northern Ireland and mainland Britain.

The pound fell 0.6% to $1.2413 by 6:30 AM ET

5. Oil pushes higher after drop in API crude stocks

After a surprising strong report by the American Petroleum Institute, which showed that there was still strong demand for crude oil despite record-high prices of gasoline and diesel, prices rose once again. The government’s data are due at 10:30 AM ET.

Geopolitical risks were also on the rise again after Libya’s parliament-elected Prime Minister decamped to the town of Sirte, having been chased out of the capital Tripoli by rival factions. That sets up the prospect of further disruptions to shipments from the key North African supplier – one not constrained by the OPEC+ quota agreement.

Janet Yellen’s comments suggesting that EU impose tariffs instead of an embargo on Russian oil seem to have little effect in easing market tightness.

Futures rose 1.3% to $111.06 per barrel by 6:40 am ET, and was 1.0% higher at $113.09.