Market Analysis

Beyond the Numbers

Upbeat Retail Sales Data May Lead To Rebound On Wall Street
8/15/2019 8:59 AM

The major U.S. index futures are pointing to a higher opening on Thursday, with stocks likely to regain some ground following the sell-off seen in the previous session.

Early buying interest may be generated in reaction to a batch of largely upbeat U.S. economic data, including a report from the Commerce Department showing retail sales increased by much more than expected in the month of July.

Adding to the positive sentiment about retail, Walmart (WMT) reported second quarter results that beat analyst estimates on both the top and bottom lines and raised its full-year guidance.

Separate reports from the New York and Philadelphia Federal Reserves also showed continued growth in regional manufacturing activity in August, although the pace of growth in the Philadelphia slowed from last month.

Meanwhile, the Labor Department released a report showing a bigger than expected increase in first-time claims for U.S. unemployment benefits in the week ended August 10th.

Following the rally seen in the previous session, stocks showed a substantial move back to the downside during trading on Wednesday. With the sharp pullback on the day, the Dow and the S&P 500 ended the session at their lowest closing levels in over two months.

The major averages finished the day just off their lows of the session. The Dow plummeted 800.49 points or 3.1 percent to 25,479.42, the Nasdaq plummeted 242.42 points or 3 percent to 7,773.94 and the S&P 500 tumbled 85.72 points or 2.9 percent to 2,840.60.

The sell-off on Wall Street came amid concerns about a potential recession after the yield on the benchmark ten-year note dropped below the yield on the two-year note.

The inversion is widely seen as an indicator of a recession, although data from Credit Suisse shows the economic downturn typically does not occur until almost two years later.

The yield on the closely watched thirty-year bond also showed a notable decrease on the day, tumbling to a new record low.

The strength among treasuries and the subsequent drop in yields came as a disappointing batch of Chinese economic data led to renewed concerns about the global economy, inspiring traders to seek safe havens such as bonds.

Traders will be given a clearer picture of the strength of the U.S. economy with the release of an avalanche of economic data on Thursday.

Reports on weekly jobless claims, retail sales, and industrial production are likely to be in the spotlight, although data on regional manufacturing activity, labor productivity and costs, business inventories, and homebuilder confidence may also attract attention.

The Labor Department released a report this morning showing import prices in the U.S. unexpectedly showed a modest increase in the month of July.

Import prices rose by 0.2 percent in July after plunging by a revised 1.1 percent in June, while economists had expected import prices to come in unchanged.

The report also showed an unexpected uptick in export prices, which crept up by 0.2 percent in July after falling by a revised 0.6 percent in June. Export prices had also been expected to come in unchanged.

Energy stocks turned in some of the market's worst performances amid a steep drop by the price of crude oil. Crude for September delivery climbed off its worst levels but still closed sharply lower amid concerns about global energy demand.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plummeted by 6.2 percent, the NYSE Arca Natural Gas Index plunged by 4.4 percent and the NYSE Arca Oil Index sank by 3.5 percent.

Worries about the outlook for global demand also contributed to a substantial pullback by steel stocks, as reflected by the 4.5 percent nosedive by the NYSE Arca Steel Index.

Banking stocks also moved sharply lower amid the drop in bond yields, dragging the KBW Bank Index down by 4 percent to a seven-month closing low.

Technology, retail, transportation, and brokerage stocks also saw considerable weakness amid the broad based sell-off on Wall Street.

Commodity, Currency Markets

Crude oil futures are slipping $0.36 to $54.87 a barrel after tumbling $1.87 to $55.23 a barrel on Wednesday. Meanwhile, an ounce of gold is trading at $1,521.70, down $6.10 compared to the previous session’s close of $1,527.80. On Wednesday, gold surged up $13.70.

On the currency front, the U.S. dollar is trading at 106.21 yen compared to the 105.91 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1143 compared to yesterday’s $1.1139.


Asian stocks turned in a mixed performance on Thursday after all three major U.S. indexes fell around 3 percent overnight on fears that a recession could be on the horizon amid prolonged U.S.-China trade tensions.

Chinese shares reversed early losses to close higher, with realty stocks gaining ground after data showed China's new home prices rose in July. Tech stocks also surged as Beijing puts more emphasis on self-reliance and developing indigenous technology.

The benchmark Shanghai Composite Index rose 6.88 points or 0.3 percent to 2,815.80, while Hong Kong's Hang Seng Index advanced 193.18 points or 0.8 percent to 25,495.46.

Meanwhile, Japanese shares closed lower as recession fears gripped markets worldwide, sending the safe-haven yen higher and weighing heavily on exporters. Financials also took a hit after the yield on 30-year U.S. government bonds fell below 2 percent for the first time.

The Nikkei 225 Index ended down 249.48 points or 1.2 percent at 20,405.65 after falling as low as 20,184.85, its lowest level since August 6th. The broader Topix index closed 1 percent lower at 1,483.85.

Automakers Toyota Motor, Nissan Motor, Honda Motor and Mazda Motor fell between 0.9 percent and 1.7 percent as the yen strengthened amid heightened risk aversion. Canon fell over 2 percent, Panasonic shed 2.6 percent and Sony declined 1.3 percent.

Among financials, Mitsubishi UFJ Financial Group dropped 1.1 percent and Dai-ichi Life Holdings retreated 1.6 percent.

In the tech space, Advantest and Screen Holdings ended down over 2 percent. Market heavyweight Fast Retailing fell 2 percent and energy firm Inpex declined 1.8 percent.

Australian shares plunged as signals of a recession sent shivers through world markets. The benchmark S&P/ASX 200 Index tumbled 187.80 points or 2.9 percent to 6,408.10 amid a broad based sell-off. The broader All Ordinaries Index ended down 186.70 points or 2.8 percent at 6,490.80.

The big four banks gave up around 3 percent each, while miners BHP, Rio Tinto and South32 ended down between 2.7 percent and 4.4 percent.

A steep drop in oil prices pulled down energy stocks, with Woodside Petroleum, Origin Energy, Santos and Oil Search losing 4-7 percent.

Gold miner Evolution Mining advanced 1.6 percent and Northern Star added 1.8 percent as gold prices rebounded on safe-haven demand.

QBE Insurance fell over 1 percent despite the company reporting a 35 percent jump in its first-half fiscal 2019 cash profit.

Telecommunications giant Telstra declined 1.8 percent as it slashed its dividend after reporting a 40 percent slump in 2019 full year net profit.

Vitamin and supplement maker Blackmores slumped 14.9 percent after reporting a more than 23 percent fall in full-year profit.

On the economic front, the unemployment rate in Australia came in at a seasonally adjusted 5.2 percent in July, unchanged from the previous month and in line with expectations.

The Australian economy added 41,100 jobs last month, far surpassing expectations for a gain of 14,000 jobs following the increase of 500 jobs in June.


European stocks have fallen on Thursday, extending losses from the previous session as commodity-related stocks continue to bleed on global growth worries. Euro area government bond yields went further into negative territory, fueling fears of a global recession.

While the U.K.’s FTSE 100 Index is down by 0.9 percent, the German DAX Index is down by 0.6 percent and the French CAC 40 Index is down by 0.2 percent.

Swiss telecommunication services firm Swisscom has shown a notable move to the downside after reporting a drop in second quarter revenue.

Dutch insurer Aegon has also slumped after its capital or solvency rate under Europe's new accounting regime fell to 197 percent at the end of June, from 211 percent at the end of 2018.

United Internet has also plunged as the internet services company cut its full-year sales outlook, citing weaker sales in the hardware business. Likewise, telecom firm Drillisch has plummeted after cutting its profit outlook.

On the other hand, Danish brewer Carlsberg has jumped after it posted a solid increase in half-year sales, with strong margin improvement and continued solid cash flow.

Chemical company K+S Group has also advanced after reporting a rise in its second-quarter earnings before interest, taxes, depreciation and amortization.

FirstGroup Plc, a provider of transport services, has also jumped after the company appointed David Martin as Chairman with immediate effect.

In economic releases, official data showed that U.K. retail sales grew unexpectedly in July. U.K. retail sales volume grew 0.2 percent in July from June, when sales advanced 0.9 percent. Sales were forecast to drop 0.2 percent.

U.S. Economic Reports

The Commerce Department released a report showing retail sales in the U.S. increased by much more than expected in the month of July.

The report said retail sales climbed by 0.7 percent in July after rising by a revised 0.3 percent in June. Economists had expected retail sales to rise by 0.3 percent compared to the 0.4 percent increase originally reported for the previous month.

Excluding a drop in auto sales, retail sales surged up by 1.0 percent in July following a revised 0.3 percent increase in June.

Ex-auto sales had been expected to climb by 0.4 percent, matching the growth originally reported for the previous month.

A report released by the Labor Department showed a modest increase in first-time claims for U.S. unemployment benefits in the week ended August 10th.

The report said initial jobless claims rose to 220,000, an increase of 9,000 from the previous week's revised level of 211,000.

Economists had expected jobless claims to rise to 214,000 from the 209,000 originally reported for the previous week.

The Labor Department said the less volatile four-week moving average inched up to 213,750, an increase of 1,000 from the previous week's revised average of 212,750.

Meanwhile, a report released by the Federal Reserve Bank of New York unexpectedly showed a slight acceleration in the pace of growth in regional manufacturing activity in the month of August.

The New York Fed said its general business conditions index inched up to 4.8 in August after climbing to 4.3 in July, with a positive reading indicating growth in regional manufacturing activity. Economists had expected the index to dip to 3.0.

Meanwhile, the New York Fed said the indexes assessing the six-month outlook suggested that firms were somewhat less optimistic about future conditions than they were last month.

Philadelphia-area manufacturing activity saw continued growth in the month of August, according to a report released by the Federal Reserve Bank of Philadelphia, with the pace of growth slowing by less than economists had expected.

The Philly Fed said its diffusion index for current general activity dropped to 16.8 in August after surging up to 21.8 in July, although a positive reading still indicates growth in regional manufacturing activity. Economists had expected the index to tumble to 10.0.

The Labor Department also released a report showing U.S. labor productivity increased by more than anticipated in the second quarter.

The report said labor productivity climbed by 2.3 percent in the second quarter after surging up by a revised 3.5 percent in the first quarter.

Economists had expected productivity to increase by 1.5 percent compared to the 3.4 percent jump that had been reported for the previous month.

The Labor Department also said unit labor costs spiked by 2.4 percent in the second quarter after soaring by a revised 5.5 percent in the first quarter.

Labor costs had been expected been expected to surge up by 2.0 percent compared to the 1.6 percent slump that had been reported for the previous quarter.

The Federal Reserve is scheduled to release its report on industrial production in the month of July at 9:15 am ET. Industrial production is expected to edge up by 0.2 percent in July after coming in unchanged in June.

At 10 am ET, the National Association of Home Builders is due to release its report on homebuilder confidence in the month of August. The housing market index is expected to come in unchanged after ticking up to 65 in July.

The Commerce Department is also scheduled to release its report on business inventories in the month of June at 10 am ET. Business inventories are expected to inch up by 0.1 percent.

Stocks In Focus

Shares of Cisco Systems (CSCO) are moving significantly lower in pre-market trading after the networking giant reported better than expected fiscal fourth quarter earnings but provided disappointing guidance.

Tapestry (TPR) may also come under pressure after the parent company of high-end luxury fashion brands such as Coach and Kate Spade reported fiscal fourth quarter results that missed analyst estimates.

On the other hand, shares of J.C. Penney (JCP) are likely to see initial strength after the department store operator reported a narrower than expected second quarter loss.

Data storage company NetApp (NTAP) may also move to the upside after reporting fiscal first quarter results that exceeded analyst estimates on both the top and bottom lines.
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