While you were sleeping: US retail sales fall short

Thursday 14th May 2015

Wall Street seesawed, with the Dow Jones Industrial Average fluctuating between losses and gains, as a disappointing report on US retail sales and concern about a slump in bonds offset corporate activity.

A Commerce Department report showed US retail sales were flat in April, compared with expectations for a 0.2 percent gain. The data highlights recent weakness in consumer sentiment and GDP, even as the US jobs market continues to surprise on the upside, and suggests the economy’s sluggishness from the first quarter lingers.

The data also suggested the Federal Reserve has now even less reason to raise interest rates any time soon. The US dollar slid, as a result.

"Hopes for a strong rebound are now fading," Thomas Costerg, an economist at Standard Chartered Bank in New York, told Reuters. “The likelihood of a near term Fed action is almost zero now.”

Even so, analysts remain optimistic on both the US consumer and the economy.

”We are seeing some evidence that the weakness in the first quarter has spilled over to this quarter, but I'm not concerned that US consumer spending for the year is at risk," Jeremy Zirin, head of investment strategy at UBS Wealth Management in New York, told Reuters.

John Ryding, chief economist at RDQ Economics in New York, agreed.

"We remain puzzled by the softness in retail sales given the gains in employment, real incomes from lower energy prices, and wealth, but we continue to look for consumer spending to pick up this year,” Ryding told Reuters.

Meanwhile, the pressure on rates continued in the bond market, pushing yields on the 10 year US benchmark bond to the highest level in nine months. Higher yields make fixed income securities more appealing to investors.

In late trading in New York, the Dow Jones Industrial Average slipped 0.05 percent. The Standard & Poor’s 500 Index eked out a 0.03 percent gain, while the Nasdaq Composite Index rose 0.21 percent.

A slump in DuPont shares, last trading 6.6 percent lower, dragged the Dow lower. Shares of Home Depot and those of Wal-Mart also fell, down 1.1 percent and 1 percent respectively.

Still, corporations keep showing clear confidence in valuations with a fresh round of acquisitions.

Shares of Williams Partners soared, last trading 21.1 percent higher after Williams Cos said it would agree to buy the 40 percent it doesn’t already own for about US$13.8 billion.

“M&A will continue to be strong as companies are more confident about spending excess cash and as debt continues to be cheap," Jeff Kravetz, regional investment director at US Bank Wealth Management in Phoenix, Arizona, told Reuters.

In Europe, the Stoxx 600 Index ended the day with a 0.2 percent decline from the previous close. Earlier in the session it had gained as much as 1.1 percent, according to Bloomberg.

A report showed the eurozone economy expanded 0.4 percent in the first quarter, its best clip in nearly two years. Still, the pace of growth in Germany, the region’s engine economy, disappointed as it slowed to 0.3 percent, down from 0.7 percent in the previous period.

The euro benefited.

“On the European side, we have had some good numbers, and on the other side, people have been disappointed in the performance of US data, and that is weighing on the [US] dollar and allowing the euro to trade higher,” Sonja Marten, a currency strategist at DZ Bank in Frankfurt, told Bloomberg.

France’s CAC 40 Index fell 0.3 percent, while Germany’s DAX slid 1.1 percent. The UK’s FTSE 100 Index rose 0.2 percent.

BusinessDesk.co.nz

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