While you were sleeping: US retail slowdown spooks Wall St

Wednesday 15th April 2009

Weaker-than-expected US retail sales and falling producer prices knocked US stocks back more than 1.5% on Wall Street.

Also pushing the market were speculation that other financial institutions would follow Goldman Sachs and seek major capital-raising, after the firm raised US$5 billion in a day following the early release of stronger-than-expected first-quarter results.

Goldman Sachs shares fell 12% to US$115.11, after it raised the funds to help repay US$10 billion in federal bailout money it said it no longer required, triggering concerns that other banks may feel pressured to make early repayments or risk being seen as weak.

The repayment, subject to the results of federal "stress testing" due later this month, will lift restrictions on Goldmans, including executive pay, which for CEO Lloyd Blankfein, fell from US$70.3 million in 2007 to US$1.1 million in 2008.

The S&P 500 Index fell 2% to 841.5 and Dow Jones Industrial Average was off 1.7% to 7920.18, putting a cap on the recent surge that has taken the S&P 500 up 24% from a 12 year low in early March.

The Nasdaq Composite fell 1.7% to 1625.72. Chipmaker Intel Corp. edged up 0.2% to US$16.01 after posting first-quarter earnings of 11 US cents per share against a predicted 3 cents per share. The result was still well below the same quarter last year, when EPS was at 25 cents.

Intel gave no formal outlook for second-quarter performance, beyond forecasting for modelling purposes that revenues would stay flat at around US$7.1 billion a quarter for the rest of the year, a 26% decline on the same quarter a year earlier.

EBay Inc. fell 1.7% to US$14.38. The online auction site is planning an initial public offering for its Skype internet-calling business next year. It acquired the business in 2005 for US$2.6 billion.

US retail sales fell 1.1% in March, after two unexpected rises in January and February, and contrary to markets' predictions of 0.3% growth. Car sales, electronic goods and restaurants were hardest hit.

In a speech on the economy, US President Barack Obama said the programmes to recapitalise banks, save the auto industry and shore up home lending were starting to generate "signs of economic progress."

"There is no doubt that times are still tough. By no means are we out of the woods yet," he said.

The comments were echoed by US Federal Reserve chairman Ben Bernanke "A levelling out of activity is the first step toward recovery," he said. There were encouraging signs in some sectors, although the US economy was still contracting.

The US dollar and yen rallied on investor caution, putting pressure on the euro and Australasian currencies, which tend to attract investors when global risk appetite improves. By late afternoon in New York, the euro was down 0.8% against the US dollar at US$1.32.

In Asian markets, Singapore surprised on the downside by announcing a 19.7% annualised rate of economic contraction in the first three months of this year and its first effective currency devaluation since 2003 of between 1.5% and 2%.

Oil prices rose slightly, with Brent crude gaining to US$52.17

Copper fell from a five-month high after the US retail sales report, which stoked concern the recession won't end soon.

Copper futures for July delivery fell 1.1 cents, or 0.5 percent, to $2.1285 a pound on the New York Mercantile Exchange's Comex division, the first decline since April 6.

Gold futures for June delivery fell 0.4% to US$892 an ounce on the New York Mercantile Exchange.

In Europe, the DAX 30 rose 1.5% to 4557.01 and the CAC 40 to 3000.22. The FTSE 100 edged up 0.1% to 3988.99.

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