Beyond the Numbers
Disappointing Retail Sales Cast Cloud on Domestic Recovery
7/16/2012 9:12 AM
The major U.S. index futures are pointing to a lower opening on Monday, with apprehensions concerning global economy continuing to keep sentiment subdued. Earlier in the global trading day, comments by Chinese premier Wen Jiabao created indecision among Asian and European investors. A Commerce Department report showed that U.S. retail sales unexpectedly fell in June. The lackluster data is likely to stir anxiety about consumer spending. At the same time, Citigroup’s (C) earnings beat should come as a relief to the markets.
U.S. stocks closed the week ended July 13th on a mixed note, as the European debt turmoil, lukewarm economic data and lackluster earnings reports kept the mood of the markets largely downbeat.
Last Monday, the major U.S. averages closed lower, stung by some negative economic data from Japan and the ongoing anxiety over the European debt crisis. European debt worries and corporate earnings worries haunted the markets on Tuesday, sending the major averages notably lower.
The major averages extended their slide on Wednesday, as the June FOMC minutes showing that the central bank does not consider additional quantitative easing as essential at this juncture accentuated economic worries. Stocks declined yet again on Thursday, unable to find any positive catalyst that can propel them higher. Meanwhile, fairly positive bank earnings supported the cause of the markets on Friday, contributing to a rebound.
For the week, the Dow Industrials added 0.04 percent and the S&P 500 Index closed 0.16 percent higher, while the Nasdaq Composite slipped close to 1 percent.
Among the sector indexes, the NYSE Arca Airline Index, the NYSE Arca Oil Index and the KBW Bank Index added over 1 percent each, while the Philadelphia Oil Service Index gained close to 2 percent. On the other hand, the Philadelphia Semiconductor Index declined 5.10 percent and the NYSE Arca Gold Bugs Index lost 4.51 percent.Currency, Commodity Markets
Crude oil futures are slipping $0.34 to $86.76 a barrel after advancing $2.65 or 3.14 percent to $87.10 a barrel in the week ended July 13th. The commodity declined moderately last Monday, reflecting waning risk appetite among traders. The commodity declined by over $2-a-barrel on Tuesday before rebounding by close to $2-a-barrel on Wednesday.
The commodity rose modestly on Thursday and added to its gains on Friday before ending the week higher. Oil received support on Friday from Chinese GDP data, which came in line with expectations, and supply concerns arising from production issues in the North Sea oilfields.
Gold futures, which rose $13.10 or 0.83 percent to $1,592 in the previous week, are currently declining $5.20 to $1,586.80 an ounce.
Among currencies, the U.S. dollar closed mostly higher in the week ended July 13th, rising 0.33 percent against the euro to $1.2249, with the U.S. currency getting a shot in the arm from the risk aversion that prevailed for much of the week. Meanwhile, the dollar edged down 0.58 percent against the yen to 79.20 yen.
The greenback is currently trading at 79.10 yen and is valued at $1.2239 versus the euro.Asia
The major Asian markets failed to capitalize on the positive lead from Wall Street last Friday and closed on a mixed note. The Japanese market remained closed on account of a public holiday. Jiabao has reportedly stated that the momentum for a recovery in economic growth isn’ t yet in place and that difficulties may persist for a while. The comments created some indecision among traders, particularly against the backdrop of a bleak debt situation in Europe and the slippery recovery in the U.S.
Australia’s All Ordinaries rose sharply in early trading, hitting its intra-day high. Thereafter, the index gave back some of its gains over the course of the session, yet closed moderately higher. The index ended up 24.90 points or 0.60 percent at 4,143. Energy and material stocks led the gains.
Hong Kong’s Hang Seng Index showed volatility throughout the session before closing up 28.71 points or 0.15 percent at 19,121. On the other hand, China’s Shanghai Composite Index closed down 37.94 points or 1.74 percent at 2,148, its lowest level since March 2009. Europe
The major European markets are trading lower ahead of a few key U.S. earnings and economic reports. The French CAC 40 Index and the German DAX Index are slipping 0.46 percent and 0.09 percent, respectively, while the U.K.’s FTSE 100 Index is down 0.03 percent.
In corporate news, shares of U.K. securities firm G4S came under selling pressure after the company admitted that it will not be able to meet its contractual obligation of supplying security personnel for the 2012 London Olympics. The company expects to incur a loss of up to 50 million pounds to deliver the necessary staffing.
Swedish fashion retailer H&M announced that its comparable store sales rose 3 percent in June compared to the year-ago period.
On the economic front, final estimates released by Eurostat showed that the eurozone’s annual inflation rate held steady at 2.4 percent in June. The rate was also unchanged from the preliminary estimate.
A separate report showed that the eurozone’s trade surplus increased to 6.9 billion euros in May from 3.7 billion euros in April. Economists had expected a more modest surplus of 4 billion euros.
House prices in the U.K. fell 1.7 percent month-over-month in July, marking the steepest drop in four years and the first in six months, according to a house price survey by Rightmove. U.S. Economic Reports
The unfolding week provides ample data points regarding the economy’s ability to withstand both domestic and overseas shocks. The Commerce Department's retail sales report for June, the July manufacturing surveys of the New York Federal Reserve and the Philadelphia Federal Reserve, the weekly jobless claims report and the Federal Reserve's industrial production report for June are among the closely watched reports of the week.
Some key housing reports, including the Commerce Department's housing starts report for June, the National Association of Realtors' existing home sales report for June and the National Association of Realtors' housing market index for July are also due for the week. The spotlight is also likely to be on Federal Reserve Chairman Ben Bernanke's Congressional testimony and the Federal Reserve's Beige Book.
The business inventories report for May, the Labor Department's consumer price report for June, the Conference Board's leading economic indicators index for June and announcements concerning the Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.
Industrial output may have seen a rebound in June, thanks to higher energy and utility output. However, a reading below '50' for the headline manufacturing index of the ISM's national manufacturing survey does not bode well for manufacturing output.
Most economists expect housing starts to have increased in June, as builder sentiment has improved and building permits rose in May. BMO Capital Markets notes that the construction sector has received a boost from leaner inventories and firmer demand, especially from investors seeking rental properties. Going by an increase in the pending home sales index for May, existing home sales may also have arisen.
U.S. retail sales posted an unexpected and severe drop for June, according to figures released by the Commerce Department. Advance estimates for U.S. retail sales for June came in at a seasonally adjusted level of $401.5 billion, a 0.5 percent drop from May levels.
Most economists had expected retail sales, which fell 0.2 percent in May, to rebound in June rather than continuing to contract, with the consensus forecast predicting 0.2 percent growth.
Automotive sales drove some of the overall decline for the month, dropping 0.6 percent. Non-automotive retail sales, which most economists had expected to show a slight, 0.1 percent, increase after a 0.4 percent decline in May, also continued to contract, falling 0.4 percent in June.
Manufacturing activity in New York has expanded modestly in the month of July, according to a report released by the Federal Reserve Bank of New York on Monday, with the index of activity in the manufacturing sector rising by more than anticipated.
The report showed that the general business conditions index rose to 7.4 in July from 2.3 in June, with a positive reading indicating growth in the sector. Economists had expected the index to show a more modest increase to a reading of 4.5.
The Commerce Department is scheduled to release its business inventories report for May 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 0.3 percent increase in business inventories for the month.
Business inventories rose 0.4 percent month-over-month in April, with inventories up 6 percent year-over-year. Meanwhile, business sales rose 0.2 percent from the previous month and were up 5.4 percent from the year-ago period. The business inventories to sales ratio was at 1.26 in April compared to 1.25 in the year-ago period.Stocks in Focus
Citigroup’s second quarter profit declined from the previous year period, although earnings per share were above Wall Street view. Total revenues for the quarter fell 10 percent and were below the consensus estimate.
Par Pharmaceutical has agreed to be acquired by an affiliate of TPG in a transaction with an equity value of $1.9 billion or $50.00 per share.
MasterCard (MA) said it has agreed to a memorandum of understanding to settle the current U.S. merchant class litigation. The company noted that its share of the cash portion of the settlements will total $790 million on a pre-tax basis. With the company having already recorded a $770 million charge in the fourth quarter of 2011, it would now incur an additional $20 million pre-tax charge in its second quarter.
United Parcel Service (UPS) said it expects its previously announced acquisition of TNT Express acquisition to be completed in the fourth quarter of 2012. UPS expects the European Commission’s review to move to a Phase II review, as there are certain areas that require more time to analyze.
Regis (RGS) said it has agreed to sell its Hair Club for Men and Women subsidiary to Aderans Co. for $163.5 million.
Cintas (CTAS), JB Hunt Transportation (JBHT), Lincare (LNCR) and Packaging Corp. (PKG) are among the companies due to release their quarterly results after the market closes.