US Stocks Mixed After of US Retail Sentiment Data

Market Update
Friday, August 13, 2010

U.S. stocks drifted between small gains and losses in light trading Friday following economic data that showed some improvement, but not enough to halt investors' worries about the health of the economy.

The Dow Jones Industrial Average was recently up 31 points, to 10351, having recovered from a 35-point drop earlier in the session. However, the measure is still down 2.9% for the week. The slump came on weak economic data pointing to a slowdown in the economic recovery.

Consumer sentiment was reported as moderately up only slightly nudged the US market with missed expectations. A closely watched poll of economists conducted by the Federal Reserve Bank of Philadelphia saw analysts downgrade their estimates of future growth and hiring levels, as well as inflation rates, although the forecasters still put low odds on another contraction in growth.

The survey found some economists expecting 2010 gross domestic product to grow by 2.9%, down from last quarter's estimate of a 3.3% gain, while 2011 is seen up by 2.7%--it had been estimated at a 3.1% gain--and 2012 is seen rising 3.6%, a touch higher than the last forecast of 3.2%.

Stocks headed for modestly lower open, extending three consecutive days of decline, as investors digested mixed reports on retail sales and inflation. Dow Jones industrial average, S&P 500 and Nasdaq futures were slightly lower. US retailers rose less than forecast in July. The cost of living in the US climbed in July for the first time in four months.

U.S. stock futures fell slightly Friday morning as worries about the health of the global economy offset gains in U.S. retail sales and consumer prices.

Adjusted U.S. retail sales rose 0.4% in July, meeting expectations and marking the first increase in three months, although the narrow gain was driven by cars and gas as demand fell for many other merchants fighting a sluggish economy. rose 0.4%, on par with forecasts by economists.

Other data showed U.S. consumer prices rose in July for the first time in four months on the back of higher energy prices, but underlying inflation remained tame amid a weak economy. The seasonally adjusted consumer price index for July rose by 0.3% from June, while the underlying inflation rate that's more closely watched by the Federal Reserve barely rose. The figures were in line with expectations.

The U.S. Dollar Index, reflecting the U.S. currency against a basket of six others, was flat. Treasurys were higher, pushing the yield on the 10-year note down to 2.72%. Crude-oil futures edged up while gold futures fell.

Helping to boost the dollar were comments by Federal Reserve Bank of Kansas City President Thomas Hoenig. He said, "We need to get off of the emergency rate of zero, move rates up slowly and deliberately," which will bring policy in better alignment "with the economy's slow, deliberate recovery," the official said. While the markets may like the current stance of monetary policy, Hoenig said "I wish free money was really free and that there was a painless way to move from severe recession and high leverage to robust and sustainable economic growth, but there is no short cut."

Hoenig's comments were delivered Friday before a meeting with the community in Lincoln, Neb. Hoenig has been a persistent critic of the Fed's stance throughout his tenure this year as a voter on Federal Open Market Committee. He has fretted that the current stance of policy could give way to fresh financial imbalances.

Canadian Share prices are little changed in early trading Friday morning. Toronto's composite index is down 0.26 points, to 11523.24, with advances leading declines by 4 to 3. Volume of 37.7 million shares after the first 15 minutes of the session is below Thursday's early volume of 44.8 million shares. Canada's economy is continuing to grow, but at a slower pace, Canadian Finance Minister Jim Flahtery said Friday.

Toronto Indexes at 3:00 p.m.

S&P/TSX Composite 11524.63 up 1.03 or 0.0%
S&P/TSX 60 Index 670.84 off 1.11 or 0.2%
Financials 167.44 off 0.42 or 0.3%
Materials 339.24 off 2.08 or 0.6%
Energy 272.17 off 0.84 or 0.3%
Industrials 98.11 up 0.65 or 0.7%
IT 27.34 off 0.14 or 0.5%


Data out of the euro zone showed the euro-zone economy grew at its fastest pace in four years in the second quarter, driven by an unexpectedly strong surge in Germany.

The German economy grew by 2.2% in the three months to the end of June, its fastest quarterly growth in more than 20 years, official figures show. Last year Germany had -5% growth, so it's a 2.2% growth upward from the lower number. German stocks declined.

"Such quarter-on-quarter growth has never been recorded before in reunified Germany," the national statistics office, Destatis, said. The main reason for the higher-than-expected growth was strong exports, helped by a weaker euro.

The eurozone economy grew by 1% during the quarter. This compares with growth of 0.2% in the first three months of the year, the area's official statistics agency, Eurostat, said.

However, the euro fell to a three-week low against the dollar, and was recently at $1.2818, down from $1.2827 late Thursday. The decline came as Italian auctions were slightly weaker than expected, prompting jitters ahead of an Irish auction next week.

Worries about Ireland's banks have ramped up after Ireland received European Commission approval this week for an additional 10 billion euros ($12.9 billion) in capital for state-owned Anglo Irish Bank, on top of the 14.3 billion euros the government already has injected into the bank, while Bank of Ireland, 36%-owned by the government, reported a pretax first-half loss nearly twice as big as its loss a year earlier. The combination of events has made it more expensive for Ireland to borrow and driven the country's credit-default insurance costs 36% higher since the start of the month, to levels last seen just ahead of the European banking stress tests.

In another sign of the difficulties euro-zone banks face in financing themselves, Spanish banks took EUR130.21 billion in funding from the ECB in July, up 3% from EUR126.3 billion in June, according to data released by the Bank of Spain Friday. It was the fourth month in a row where Spanish banks increased their net borrowing from the ECB, and the highest reading since the creation of the euro system.

Brazilian stocks opened higher Friday, after U.S. data came in line with expectations and reduced concerns about a weak U.S. recovery. Brazil's benchmark Ibovespa stock index opened 0.4% higher at 66203 points. Chile stocks moved up 1% after a rate hike, and an optimistic economic forecast. Argentina's July CPI +0.8% on month; +11.2% on the year.

Argentina's national statistics institute, Indec, reported that the country's consumer price index rose 0.8% in July from the previous month and was up 11.2% from a year ago. That figure was in line with the median forecast of about 50 economists and think tanks surveyed by the Argentine Central Bank.

The Central Bank asks economists to forecast what Indec will report, not what they think inflation actually was last month. Indec's number is substantially lower than that offered by private-sector economists who were asked to forecast not what Indec would report, but what they thought inflation actually was in July.

FIEL, the foundation for Latin American economic investigations, has forecast Argentina's 2010 inflation at 24.6% and 27.5% for 2011.

Virtually all private-sector economists here say real inflation is two to three times higher than what Indec reports. Even so, Indec official says their data are better than ever. In July, the consumer price index probably rose 1.8% from the previous month, putting prices up 23% on the year, according to the consulting firm MyS Consultores.

"We expect inflation this year to total 25% to 27%," said Claudio Mauro, an economist at MyS Consultores. Six economists surveyed by Dow Jones Newswires estimated that consumer prices rose by between 1.4% and 1.8% in July.

Buenos Aires City, which measures inflation and is run by a former director of consumer prices at Indec, estimated that prices rose 1.9% in July from the previous month. "After a brusque decline in the April-May inflation rate, we're observing a worrisome trend in May-July, which seems to be hitting a floor near 2% for the next months," Buenos Aires City said in a report.

The inflation rate in the second half of the year typically rises because of seasonal factors, economists say, and most expect the rate to speed up between now and December. "Inflation in the second quarter is always slower but then it rises again in the third and fourth quarters and peaks in December," said Gabriel Camano Gomez, an economist at Joaquin Ledesma & Asociados. "We're going to be at 26% or 27% by the end of the year."

Gomez said inflation in food prices was "especially virulent" in July because of cold weather that hindered fruit and vegetable production. "This is particularly hard on Argentines whose income levels are low," he said.

Health insurance costs rose by an average of around 15%, fuel prices rose and parking lot fees soared, Gomez said. This led the index's transportation category to rise substantially, he said.

In addition, an extended cold spell kept clothing retailers from offering sales on winter clothing, which is something that typically helps to lower clothing prices in July. Gomez said inflation is reducing the competitiveness of Argentina's currency, the peso, by increasing the cost of goods and services when measured in U.S. dollars.

"By the end of the year this means the peso will have appreciated in real terms by between 6% and 7%," he said. The peso is currently trading at around ARS3.93 to the dollar.


World markets:

Shanghai 2,606.70 +31.22 (1.21%)
Nikkei 225 9,253.46 +40.87 (0.44%)
Hang Seng Index 21,071.57 -34.14 (-0.16%)
TSEC 7,891.58 +61.79 (0.79%)
FTSE 100 5,230.76 -35.30 (-0.67%)
CAC 40 3,579.74 -41.33 (-1.14%)
S&P TSX 11,523.60
S&P/ASX 200 4,459.60 +58.70 (1.33%)
BSE Sensex 18,167.03 +93.13 (0.52%)

Commodities
Crude Oil	75.73	- 0.01%
Natural Gas	4.31	+ 0.37%
Gasoline	1.96	-
Heating Oil	2.01	-
Gold	1215.60	+ 0.22%
Silver	18.09	+ 0.11%
Copper	3.26	- 0.58%

Friday's Calendar

8:30 a.m.
July Real Earnings

8:30 a.m.
July CPI (expected +0.3%), CPI Core (expected +0.1%), CPI Core, Unrounded (previous +0.16%), CPI Energy Index (previous -2.9%), CPI Food Index (previous 0), CPI Real Average Weekly Earnings (previous -0.2%), CPI, Unrounded (previous -0.14%)

8:30 a.m.
July Advance Monthly Sales for Retail & Food Services Overall Sales (expected +0.4%), Sales, Ex-Auto (previous +0.3%)

9:55 a.m.
August Thomson Reuters / University of Michigan Survey of Consumers - preliminary Sentiment Index Mid Month (expected 69.8), Expectations Index Mid Month (previous 60.6), Value (Current Period) Mid Month (previous 75.5)

10:00 a.m.
June Manufacturing & Trade: Inventories & Sales Total Inventories (expected +0.2%)