Market Analysis

Beyond the Number

Strong Retail Sales May Allay Economic Concerns
4/16/2012 9:13 AM

The major U.S. index futures are pointing to a higher opening on Monday, with sentiment remaining positive after last week’s sell-off. Risk appetite could get a shot in the arm from a government report released earlier in the day, which showed a strong increase in retail sales for March. Meanwhile, the first look at manufacturing conditions in the month of April did not present a very positive picture.

The New York Federal Reserve’s survey showed a slowdown in the expansion of the manufacturing sector. Citigroup is up in pre-market trading despite reporting a drop in first quarter profits. Across the Atlantic, sentiment is mostly upbeat, barring the U.K. market, even as the Spanish debt concerns linger.

U.S. stocks extended their retreat in the week ended April 13th, as global growth worries and latent concerns about the debt situation in Europe kept sentiment subdued.

Last Monday, the major U.S. averages declined sharply in reaction to the U.S. non-farm payrolls report for March, which showed a smaller than expected addition to payrolls. On Tuesday, European debt fears resurfaced, as the markets cringed following a surge in Spanish bond yields.

Alcoa’s (AA) earnings provided a breather to the markets on Wednesday, with the major averages rebounding and closing moderately higher in the session. The markets rallied strongly on Thursday despite the release of mixed economic data. However, sentiment reversed course on Friday, as traders reacted to a report showing a smaller than expected Chinese growth in the first quarter, mixed earnings reports and an unexpected decline by a U.S. consumer sentiment reading.

For the week, the Dow Industrials ended down 1.61 percent and the S&P 500 Index lost 1.99 percent, while the Nasdaq Composite Index declined 2.25 percent.

Among the sector indexes, the NYSE Arca Biotechnology Index slid 5.72 percent, while the NYSE Arca Oil Index, the NYSE Arca Securities Broker/Dealer Index and the KBW Bank Index declined over 3 percent each. Meanwhile, the NYSE Arca Gold Bugs Index added 2.73 percent.

Currency, Commodity Markets

Crude oil futures are gaining $0.09 to $102.92 a barrel after declining $0.48 or 0.46 percent to $102.83 a barrel in the week ended April 13th.

Oil fell by close to $1-a-barrel last Monday, with the non-farm payrolls report weighing on the space. The commodity retreated by close to $1.44-a-barrel on Tuesday amid rising Spanish bond yields.

Oil rose by over $1.60-a-barrel on Wednesday despite a bearish oil inventory report, as traders took comfort from healthy earnings reported by Alcoa. The commodity added close to $1-a-barrel on Thursday, toeing in line with the equity markets, before pulling back along with the equity markets on Friday.

Gold futures, which rose $30.10 or 1.85 percent to $1,660.20 an ounce in the previous week, are currently slipping $10 to $1,650.20 an ounce.

Among currencies, the dollar weakened 0.87 percent against the yen in the week ended April 13th before ending at 80.93 yen. The Japanese unit capitalized on the increase in risk aversion last week that drove investors to safe havens such as these. Meanwhile, the greenback ended up 0.15 percent against the euro before ending the week at $1.3078.

The dollar is currently valued at 80.78 yen and is trading at $1.3042 versus the euro.


Asian stocks closed mostly lower, with traders in the region reacting to the steep losses experienced by Wall Street stocks last Friday. Risk aversion prevailed, as Spanish bond yields continued to surge and caution prevailed ahead of some key U.S. economic data and earnings.

Japan’s Nikkei 225 average closed down 167.35 points or 1.74 percent at 9,471, weighed down by a stronger yen, which exerted downward pressure on export stocks. Australia’s All Ordinaries closed 21.70 points or 0.49 percent lower at 4,383 and Hong Kong’s Hang Seng Index closed at 20,611, down 90.40 points or 0.44 percent.

China widened the daily trading band that it had fixed for the USD/CNY exchange range to 1 percent from 0.5 percent, which is seen by economists as a small step towards moving towards a floating exchange rate and fully convertible currency.


The major European markets have moved to the upside on the day. While the U.K.’s FTSE 100 Index is up by 0.5 percent, the German DAX Index and the French CAC 40 Index are up by 1.1 percent and 1.3 percent, respectively.

In corporate news, Swedish retailer H&M reported sales, including VAT in local currencies, that rose by 26 percent year-over-year, benefiting from favorable weather and calendar effects. Comparable unit sales were up 16 percent.

Reports suggested that Credit Suisse (CS) may announce the elimination of 5,000 jobs in its investment banking business along with the release of its first quarter earnings report.

French utility GDF Suez announced an agreement to buy the 30 percent it does not already own in International Power for 418 pence per share or 6.4 billion pounds in total. This represented an increase from its earlier offer price of 390 pence per share.

U.S. Economic Reports

The re-emergence of economic fears may force traders to direct their unwavering focus on the unfolding week’s key economic events. The Commerce Department’s retail sales report for March, the results of the manufacturing surveys of the New York and Philadelphia Federal Reserves, the Federal Reserve’s industrial production report for March and the weekly jobless claims report are among the closely watched reports of the week.

A few housing readings such as the National Association of Home Builders’ housing market index for April, the housing starts report for March and the National Association of Realtors’ existing home sales report for March may also provide clarity on the economic outlook. The Commerce Department’s business inventories report for February, the Conference Board’s leading economic indicators index for March, a couple of Fed speeches and announcements concerning Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.

Housing starts may have seen a small increase due to the onset of an early spring. The anticipated improvement reflects stabilization of demand and replenishment of record low inventories. BMO Capital Market notes strong investment demand for multiple-unit dwellings. Overall, the firm expects residential construction to have risen at a 12 percent annualized rate in the first quarter, contributing 0.3 percentage points to GDP growth.

After remaining flat in February, industrial output growth may have picked up pace in March, with manufacturing and mining output offering support. Meanwhile, a warmer than normal March may have snuffed out demand for utilities.

U.S. retail sales remained strong in March although the rate of growth slowed somewhat from February levels, according to figures released by the Commerce Department. Initial estimates put the total level of U.S. retail sales at a seasonally adjusted level of $411.1 billion for March, an increase of 0.8 percent over February levels.

And while February's retail figures were revised down slightly to show 1 percent growth rather than the 1.1 percent initially reported, the March sales levels came in significantly higher than the 0.3 percent growth predicted by most economists.

While the Federal Reserve Bank of New York released a report showing a modest improvement in New York manufacturing activity in the month of April, the index of activity in the sector fell by much more than economists had been anticipating.

The New York Fed said its general business conditions index plunged to 6.6 in April from 20.2 in March, although a positive reading indicates an increase in manufacturing activity. Economists had expected the index to edge down to 18.0.

The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for February at 9 am ET.

The Commerce Department is scheduled to release its business inventories report for February at 10 am ET. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 0.6 percent increase in business inventories for the month.

Business inventories rose 0.7 percent month-over-month in January and were up 7.6 percent from a year-ago. Meanwhile, business sales rose 0.4 percent compared to the previous month. Accordingly, the business inventories to sales ratio was at 1.27 compared to 1.26 in January 2011.

The National Association of Home Builders is scheduled to release the results of its April survey on homebuilders' confidence at 10 am ET. The consensus estimates call for the index to increase to 29.

The housing market index remained flat at 28 in March following 5 straight months of gains. The index is still at its highest level since June 2007. The present conditions index fell 1 point, while the sales expectations index rose 2 points and the index measuring prospective buyer traffic remained unchanged at 22.

Cleveland Federal Reserve Bank President Sandra Pianalto is scheduled to speak about "Communication -- a Key to Value-Added Supervision" at a "Day with the Commissioner" event in Lexington, Kentucky, at 12:30 pm ET. Additionally, St. Louis Federal Reserve Bank President James Bullard will deliver the George Eccles Memorial Lecture on "The U.S. Economy and Monetary Policy” at 3:30 pm ET.

Stocks in Focus

Citigroup’s (C) first quarter profit declined from the previous year. However, excluding the impact of CVA/DVA and the net gain on minority investments, profit rose 8 percent.

Stratasys (SSYS) has agreed to merge with a subsidiary of Israel's privately held rival Objet Ltd. in an all-stock deal to form a combined entity worth about $1.4 billion

Announcing an update to its manufacturing cost reduction initiatives, SunPower (SPWR) said the initiatives are on track. Towards these initiatives, the company expects to record pre-tax GAAP restructuring charges of $51 million to $69 million and also indicated that $47 million to $63 million will be recorded in the second quarter of 2012.

Procter & Gamble (PG) announced a 7 percent increase in its quarterly dividend to $0.562 per share on its common stock.

The Nasdaq OMX Group (NDAQ) announced that Texas Instruments (TXN) will replace First Solar (FSLR) in the Nasdaq 100 Index before the start of trading on April 23rd.

Mattel (MAT) reported first quarter net income of 2 cents per share, including 4 cents per share in charges, compared to earnings of 5 cents per share last year, while sales fell 2 percent to $951.9 million. The results missed estimates.
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