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Beyond the Number

Disappointing Retail Sales Data May Weigh On Wall Street
2/14/2019 9:07 AM

The major U.S. index futures have recently come under pressure and are currently pointing to a lower opening on Thursday following the release of disappointing retail sales data.

The futures turned negative following the release of a report from the Commerce Department unexpectedly showing a significant decrease in retail sales in the month of December.

The Commerce Department said retail sales tumbled by 1.2 percent in December after inching up by a revised 0.1 percent in November.

Economists had expected retail sales to rise by 0.2 percent, matching the uptick originally reported for the previous month.

Excluding a jump in auto sales, retail sales plunged by an even steeper 1.8 percent in December after coming in unchanged in November. Ex-auto sales had been expected to edge up by 0.1 percent.

Adding to the negative sentiment, a report from the Labor Department showed first-time claims for U.S. unemployment benefits unexpectedly increased in the week ended February 9th.

Stocks saw considerable volatility late in the trading session on Wednesday but still managed to end the day modestly higher. The gains on the day once again lifted the major averages to their best closing levels in over two months.

The major averages finished the day in positive territory but well off their highs of the session. The Dow climbed 117.51 points or 0.5 percent to 25,543.27, the Nasdaq inched up 5.76 points or 0.1 percent to 7,420.38 and the S&P 500 rose 8.30 points or 0.3 percent to 2,753.03.

The higher close on Wall Street partly reflected optimism about avoiding another government shutdown, as President Donald Trump said he was "not happy" with a tentative deal reached by lawmakers but did not specifically reject the proposal.

The agreement includes far less money for physical barriers on the border than Trump has demanded, although political observers have suggested the president will likely want to avoid another damaging shutdown.

Trump has argued Democrats would be to blame for another shutdown, although the public may disagree as his controversial border wall remains the key sticking point in negotiations.

The markets also benefited from continued optimism about U.S.-China trade talks after Trump indicated he is willing to delay raising tariffs on Chinese goods if the two sides are close to a deal.

A report from the South China Morning Post said Chinese President Xi Jinping is scheduled to meet U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin during this week's talks in Beijing.

The meeting with Xi as well as a banquet for the U.S. delegation would be a sign of goodwill to cement a trade deal between the world's two biggest economies, the SCMP said.

Buying interest waned over the course of the session, however, as traders may want to see more concrete developments before making more significant moves.

On the U.S. economic front, the Labor Department released a report showing consumer prices were unchanged for the third straight month in January.

The Labor Department said its consumer price index was unchanged in January, matching the revised reading for December. Economists had expected consumer prices to inch up by 0.1 percent.

Excluding food and energy prices, core consumer prices rose by 0.2 percent for the fifth consecutive month. The uptick in core prices matched economist estimates.

The Labor Department said the annual rate of consume price growth slowed to 1.6 percent in January from 1.9 percent in December, showing the slowest rate of growth since June of 2017.

Meanwhile, the report said the annual rate of core consumer price growth was unchanged from the two previous months at 2.2 percent.

"Overall, these data support our baseline view of a well-behaved inflationary environment that provides the Fed room to pause before raising rates again," said Gregory Daco, Chief U.S. Economist at Oxford Economics.

He added, "We look for the Fed to pause throughout the first half of the year to assess the economic landscape before likely raising rates again in Q3."

Despite the continued advance by the broader markets, most of the major sectors ended the day showing only modest moves.

Energy stocks saw considerable strength, however, benefiting from a notable increase by the price of crude oil.

Reflecting the strength in the energy sector, the NYSE Arca Natural Gas Index surged up by 1.7 percent, the Philadelphia Oil Service Index advanced by 1.5 percent and the NYSE Arca Oil Index rose by 1 percent.

Networking and biotechnology stocks also saw some strength on the day, while gold stocks showed a notable move to the downside.

Commodity, Currency Markets

Crude oil futures are rising $0.15 to $54.05 a barrel after climbing $0.80 to $53.90 a barrel on Wednesday. Meanwhile, an ounce of gold is trading at $1,313.80, down $1.30 compared to the previous session's close of $1,315.10. On Wednesday, gold inched up $1.10.

On the currency front, the U.S. dollar is trading at 110.66 yen compared to the 111.01 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1299 compared to yesterday's $1.1261.

Asia

Asian stocks ended mixed on Thursday, as investors looked for progress in the U.S.-China trade talks currently underway in Beijing.

Chinese exports and imports data for January easily topped expectations, helping limit losses across the region.

China's Shanghai Composite Index edged down 1.37 points or 0.1 percent to 2,719.70, while Hong Kong's Hang Seng Index dipped 65.54 points or 0.2 percent to 28,432.05.

Chinese exports grew 9.1 percent in January from a year earlier, surprising economists who had expected exports to shrink for the second month in a row. Imports declined 1.5 percent.

Japanese shares ended roughly flat after data showed Japan's economy returned to growth in the fourth quarter.

GDP expanded a seasonally adjusted 0.3 percent sequentially in the fourth quarter of 2018, below expectations for a gain of 0.4 percent following the 0.6 percent contraction in the three months prior.

The Nikkei 225 Index finished marginally lower at 21,139.71 after climbing nearly 4 percent over the previous two sessions. The broader Topix ended slightly higher at 1,589.81.

Apparel maker Asics Corp. plunged 5 percent after it posted a net loss of 20.3 billion yen ($182 million) for the year through December 2018. Furniture retailer Otsuka Kagu gave up 5.4 percent on fund raising reports.

Toshiba ended flat after the conglomerate reported an increase in profit for the nine-month period but lowered its earnings outlook for the full year.

Australian stocks gave up early gains to end little changed as losses in the financial sector offset gains among mining and energy companies.

Both the S&P/ASX 200 Index and the All Ordinaries Index ended marginally lower at 6,059.40 and 6,139.60, respectively.

Scandal-hit wealth manager AMP slumped 7.8 percent after it reported a 97 percent drop in full-year profit. Suncorp lost 3.8 percent after the insurance provider said its profit for the first half fell 45 percent from last year.

Telecom giant Telstra slumped 2.2 percent after reporting a 28 percent decline in first-half profit and cutting its interim dividend.

On the other hand, mining heavyweights BHP and Rio Tinto gained 1.6 percent and 0.9 percent, respectively as copper prices rose amid signs of easing tensions in the U.S.-China trade conflict. Smaller rival South32 rallied 3.5 percent on strong half-year results.

Oil and gas producer Woodside Petroleum advanced 1.9 percent after reporting an increase in its annual profit and raising its dividend. Santos, Oil Search and Origin Energy climbed 1-2 percent.

Meanwhile, South Korean stocks hit a four-month high as investors reacted to positive signals from the U.S.-China trade negotiations.

The benchmark Kospi rallied 24.37 points or 1.1 percent to 2,225.85, extending gains for the fourth straight session to reach its highest closing level since October 10.

Tech behemoth Samsung Electronics jumped 2.8 percent, chipmaker SK Hynix advanced 1.6 percent and panel maker LG Display rose 2.4 percent.

Europe

European stocks are broadly higher on Thursday as Chinese trade data beat expectations and traders remain optimistic the U.S. and China will reach an agreement in trade talks.

Negotiators from U.S. and China have begun senior-level talks in Beijing aimed at ending their trade conflict.

U.S. President Donald Trump said earlier that he is open to extending an early March deadline to raise tariffs on Chinese products if the two sides are near an agreement.

While the French CAC 40 Index is up by 0.6 percent, the U.K.'s FTSE 100 Index is up by 0.4 percent and the German DAX Index is up by 0.1 percent.

Swiss nutrition, health and wellness giant Nestle has advanced after reporting an uptick in sales momentum for the first time in seven years.

Drugmaker AstraZeneca has also rallied after it forecast a second straight year of sales growth.

French energy management firm Schneider Electric has also soared after announcing a new share buyback program.

Automaker Renault has also moved notably higher after its board blocked payouts worth 10 million euros to ex-CEO Carlos Ghosn.

German lender Commerzbank has also risen after its fourth quarter profits jumped 51 percent amid a major overhaul.

On the other hand, investment manager Ashmore Group has fallen sharply after reporting reporting a 6 percent drop in first-half pretax profit.

Dutch insurer Aegon has also slumped after its net profit fell 83 percent in the second half of 2018.

Restaurant Group is also posting a steep loss in London. The company's CEO Andy McCue is leaving the firm due to extenuating personal circumstances.

In economic news, Germany's economy stagnated in the fourth quarter of 2018, preliminary data from the Federal Statistical Office showed.

GDP came in unchanged from the third quarter, when the economy contracted 0.2 percent. Economists were looking for a modest increase of 0.1 percent.

U.S. Economic Reports

Retail sales in the U.S. unexpectedly showed a significant decrease in the month of December, according to delayed data released by the Commerce Department.

The Commerce Department said retail sales tumbled by 1.2 percent in December after inching up by a revised 0.1 percent in November.

Economists had expected retail sales to rise by 0.2 percent, matching the uptick originally reported for the previous month.

Excluding a jump in auto sales, retail sales plunged by an even steeper 1.8 percent in December after coming in unchanged in November. Ex-auto sales had been expected to edge up by 0.1 percent.

A separate report released by the Labor Department showed first-time claims for U.S. unemployment benefits unexpectedly increased in the week ended February 9th.

The report said initial jobless claims rose to 239,000, an increase of 4,000 from the previous week's revised level of 235,000.

Economists had expected jobless claims to drop to 225,000 from the 234,000 originally reported for the previous week.

Meanwhile, the Labor Department also released a report showing producer prices in the U.S. unexpectedly edged lower in the month of January.

The Labor Department said its producer price index for final demand slipped by 0.1 percent for the second straight month in January. Economists had expected the index to inch up by 0.1 percent.

Excluding food and energy prices, core consumer prices increased by 0.3 percent in January after coming in unchanged in December. Core producer prices were expected to rise by 0.2 percent.

The Commerce Department is scheduled to release a separate report on business inventories in the month of November at 10 am ET. Inventories are expected to rise by 0.3 percent.

At 11 am ET, Philadelphia Federal Reserve President Patrick Harker is also scheduled to deliver a speech at the 3rd Annual Lerner MBA Student Association Conference in Newark, Delaware.

Stocks In Focus

Shares of Cisco Systems (CSCO) are moving significantly higher in pre-market trading after the networking giant reported better than expected fiscal second quarter results and increasing its dividend and stock repurchase.

Outdoor apparel maker Canada Goose (GOOS) is also likely to see initial strength after reporting fiscal third quarter results that exceeded analyst estimates on the top and bottom lines and providing upbeat guidance.

On the other hand, shares of CenturyLink (CTL) are likely to come under pressure after the communications company reported better than expected fourth quarter earnings but slashed its dividend.

Data management company NetApp (NTAP) may also see initial weakness after reporting fiscal third quarter earnings that beat estimates but weaker than expected revenues. NetApp also provided disappointing revenue guidance.
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