Last checked at 
WILL THE BANK OF ENGLAND JOIN THE 50 BPS CLUB? (1148 GMT)
The UK's central bank will reveal its next interest rate decision on August 4, with the market now pricing 95% chance of a bigger hike of 50 bps.
Investec is the latest outfit to officially change its view to match these market expectations.
Economists at Investec have re-evaluated the short-term outlook for UK inflation given the strength of gas prices, and predict an even greater hike in the domestic energy price cap than previously anticipated.
Additionally, UK GDP growth making a small gain of 0.5% month-on-month in May "may go some way towards easing some of the committee’s angst over the fragility of the economy," according to the economists.
Lastly, they point out the ECB's recent 50 bps hike and a 100 bps hike by the Canadian central bank may pave the way for a bigger BoE hike.
"While monetary authorities do not of course have to move in lockstep, the BoE may fear a credibility problem if it is perceived to be lagging behind its peers."
The risk of a further sell-off in sterling if markets perceive that the BoE is acting too timidly is another consideration behind the shift.
(Lucy Raitano)
WALMART'S TROUBLES SIGNAL MORE PAIN AT AMERICA'S SHOPPING AISLES (1036 GMT)
How severely is inflation pinching U.S. consumers' wallets?
Walmart Inc provided one of the clearest answers to that question late on Monday when the retail bellwether said shoppers were pulling back on discretionary purchases at a far greater pace than initially feared as higher prices of everything from toothpaste to gas ate into their spending power.
The company drastically slashed its profit forecast as it prepares to ramp up discounts to keep people walking into stores, sparking a sell-off in other retail stocks that was set to wipe out over $100 billion in stock market value on Tuesday.
Shares of Walmart are down 9% premarket and are dragging the broader U.S. stock market. Shares of Kroger, Best Buy , Costco, Amazon and Target fell between 2.5% and 5%.
Analysts at J.P.Morgan said Walmart's surprise update on its outlook, driven by the magnitude of its earnings decline, raises the likelihood that more guidance cuts are on the way from retailers like Target Corp and autoparts retailer O'Reilly Automotive.
Target has cut its quarterly profit margin at least once already.
Walmart's outlook provided "a diagnostic look at the average American household," showing that while consumers are digesting higher prices on food and essentials, it is being funded by lower spending on discretionary categories like apparel, according to Jefferies analysts.
"While the headlines suggest we aren't in a recession, we appear to be firmly in a discretionary goods recession," Jefferies equity analyst Stephanie Wissink wrote.
Consumers being forced to spend more on food did push Walmart to raise its U.S. comparable sales forecast, but without demand for high-margin products like appliances, electronics and clothes, the company's profits are likely to remain under pressure.
"This is a trend playing out more widely: most retailers are not struggling to grow their top lines, but they are struggling to maintain the high levels of profitability that were commonplace over the past few years." Neil Saunders, Managing Director of GlobalData said.
(Uday Sampath)
TRUSS IN DRIVING SEAT AS SUNAK FALTERS (0941 GMT)
Britain's foreign Minister Liz Truss cemented her spot as the favourite to replace outgoing Prime Minister Boris Johnson after Monday night's leadership debate.
In a fiery debate, Truss and her rival for the role, former finance minister Rishi Sunak, clashed on the best way to manage a slowing economy, with candidates criticising each other's tax and spending plans.
A snap opinion poll of 1,032 voters from Survation showed the two candidates garnered almost equal support with 39% believing Sunak performed best and 38% favouring Truss.
More importantly, among Conservative voters, 47% thought Truss performed best and 38% thought Sunak fared better.
Conservative Party members will vote over the summer for their favourite candidate and the new leader of the party will be announced on September 5.
And following last night's debate, Truss is now firmly in the driving seat.
Truss's odds on the Betfair Exchange dropped to 1.31 following the debate, implying around a 76% chance of winning the contest, from around a 66% chance prior to the appearance.
Sunak's odds of 4.1 imply just a 24% chance he'll become party leader, from around 33% before the debate.
It was a similar picture on the peer-to-peer betting exchange Smarkets, which also gives Sunak around a 1-in-4 chance of becoming the next PM.
"Time is now running out for Sunak," says Matthew Shaddick, Smarkets Head of Political Markets.
"Sunak had been a strong favourite to perform better, so the fact that Truss battled to something close to a draw was seen as a positive for her campaign," Shaddick adds.
(Samuel Indyk)
GERMANY AND ITALY TO LEAD EURO AREA CONTRACTIONS (0900 GMT)
Euro area growth is expected to be hit further by Russian gas worries, with the biggest contractions expected in Germany and Italy.
"We expect the sharpest contractions in Germany and Italy – i.e. countries with large manufacturing sectors that are highly reliant on Russian gas, and in the case of Italy, also due to domestic political stress," says Credit Suisse.
The silver lining is: gas rationing risks have risen, but that may still be avoided.
Even after a reduction in Russian gas supplies via the Nord Stream 1 (NS1) pipeline which restarted after a maintenance-related shutdown last week, Credit Suisse economists think gas rationing may still be avoided.
"And in any case – even if rationing is avoided – the surge in gas prices driven by supply uncertainty will depress activity further," they said in a note.
Higher gas prices will prompt the ECB to hike rates sharply. CS expects two 50 bps rate hikes in September and October, followed by increases of 25bps in December and February.
"We expect the ECB to stay hawkish in the near term due to high inflation, but reach the end of the hiking cycle sooner than previously expected".
(Lucy Raitano)
EUROPE OPENS WITH A WHIMPER (0747)
The pan-European STOXX 600 is hovering just in the red, last down 0.1%.
Some dire earnings are weighing the index down, namely UBS , falling 6% and Logitech, down 3.5%, after both posted results that missed the mark.
Among the worst off at the open are retailers, as they feel a delayed effect of yesterday's profit warning from top U.S. retailer Walmart.
Latest UK industry data doesn't help, with numbers today showing falling sales volumes at UK supermarkets as 90% Britons said they are increasingly watching what they are spending .
Many retailers appear near the bottom of the FTSE 350 . Shares in Marks & Spencer, Dunelm Group , ASOS and Sainsburys are down between 2%-4%. Zalando is losing 4% and is at the bottom of Germany's DAX.
Bucking the trend is Unilever, providing a lift with shares up 2.5% after it upped sales guidance.
EARNINGS TO THE RESCUE? (0712 GMT)
The European corporate earnings season picks up pace on Tuesday and the evidence so far is that rising costs and slowing demand are beginning to bite.
A few weeks back the big concern for traders was that the next leg lower for stock markets would be triggered by the rewriting of lofty earnings expectations.
While this hasn't come to pass thanks to some businesses doing better than expected, the evidence on Tuesday suggests caution.
Swiss bank UBS flagged a smaller-than-expected rise in second-quarter net profit and Logitech International reported a 38% fall in first-quarter adjusted profit and cut its full-year 2023 outlook.
According to Goldman Sachs, around 34% of the European companies reporting results for the second quarter have missed consensus by at least 5%, the highest fraction of misses since the sovereign debt crisis in 2010.
Trading was quiet across markets as investors brace for a slew of European companies to update this week as well as some of the big tech firms in the United States, including Microsoft on Tuesday.
Stocks looked set for modest declines in both Europe and the United States, while the dollar steadied not far from two-decade highs.
The start of a two-day Federal Reserve meeting, which concludes Wednesday, is also keeping traders on the sidelines with policymakers expected to raise interest rates by 75 basis points. Market attention will be squarely focused on the future path of interest rates. Key developments that should provide more direction to markets on Tuesday:
U.S. Federal Reserve starts two-day meeting
U.S. May home price index
U.S. June new home sales data
U.S. 5-year Treasury auction
Federal Reserve Bank of Philadelphia issues July Non-manufacturing Business Outlook Survey for July
Nigeria, Hungarian central bank meetings
Europe earnings: UBS, Lindt, ITV, Unilever, Michelin, Deutsche Boerse, Vivendi, LVMH, Easyjet, Unicredit
U.S. earnings: United Parcel Service Inc, General Electric, 3M Company, Xerox Corp, Coca-Cola, McDonald’s, GM, Microsoft, Google, Boston Properties
SOFT OPEN SIGNALLED AS GAS FEARS GRIP EUROPE: (0632 GMT)
European futures are signalling modest declines at the open, with the main index set to open 0.2% lower.
The market is still digesting news that Russia will reduce gas supply to Europe by 20% from Wednesday. The development fuels fears of a deeper recession triggered by soaring gas prices in Germany.
Meanwhile eyes are on the beginning of earnings seasons. Early hints provide some cause for concern.
Some of the latest figures come from UBS, which has flagged a smaller-than-expected rise in second-quarter net profit, and Logitech International, which has reported a 38% fall in first-quarter adjusted profit and cut its full-year 2023 outlook.
Around 34% of the European companies reporting results for the second quarter have missed consensus by at least 5%, the highest fraction of misses since the sovereign debt crisis in 2010, according to Goldman Sachs.
News of Amazon's plans to hike Prime subscription prices by up to 43% in Europe does little to comfort consumers already up against soaring energy and food prices.
