Morning Update

Retail Data Dampens the Mood

Stocks have given up an early bout of resiliency as a much worse-than-expected report on retail sales stymied early sentiment that had turned positive just before the sales data as traders dissected a better-than-expected earnings report from Goldman Sachs. Also, the Producer Price Index unexpectedly fell, stoking fears about the impact of deflationary pressures on prices at the wholesale level. In other equity news, Dow member Johnson and Johnson reported earnings that topped analysts' estimates. Treasuries moved higher following the disappointing retail sales and inflation reports. Later today, Fed Chief Ben Bernanke and President Barack Obama will give separate speeches. Overseas, markets were mostly higher.

As of 8:52 a.m. ET, the June S&P 500 Index Globex futures contract is 10 points below fair value, the Nasdaq 100 Index is 11 points below fair value, and the DJIA is 81 points below fair value. Crude oil is down $0.10 to $49.95 per barrel, and gold is down $2.70 at $893.10 per ounce.

Goldman Sachs (GS $130) reported 1Q EPS of $3.39, easily beating the Reuters estimate of $1.49, as revenues gained about 13% to $9.4 billion. The company benefitted from strength in its trading and principal investments, led by a record jump in fixed income, currency, and commodities revenues to $6.6 billion—more than double the amount in 1Q last year. GS said under regulatory capital guidelines currently applicable to bank holding companies, the firms tier 1 capital ratio was 13.7%. Separately, Goldman announced that it commenced a public offering of $5 billion of its common stock as it said it would like to use the capital raised plus additional resources to repay all of the TARP capital is has received from the government.

Dow member Johnson & Johnson (JNJ $130) reported 1Q EPS of $1.26, four cents above the Street's profit estimate, and revenues declined 7.2% to $15.0 billion. Worldwide consumer sales fell 8.7%, pharmaceutical sales declined 10.1%, while medical devices and diagnostic sales declined 2.9%. The company also confirmed its full-year earnings guidance of between $4.45-4.55 per share, excluding special items.

Retail sales fall, PPI drops, key speeches on deck

Advance retail sales (chart) unexpectedly fell 1.1% in March, below a forecasted gain of 0.3%, while February's decline was upwardly revised from -0.1% to 0.3%. Ex-autos, sales fell 0.9%, versus a projected reading of 0.0%. February was also revised higher from 0.7% to 1.0%. If gasoline, autos, and building materials are removed, sales at retailers dropped 0.9%, indicating that consumers—which stepped up spending for the first two months of the year—may have continued to save more to reduce debt, and that private-sector deleveraging has only just begun.

The Producer Price Index (chart) dropped 1.2% in March, much lower than an expected reading of 0.0%, according to Bloomberg. The core rate, which removes food and energy, was flat, shy of the 0.1% estimate. Year-over-year (y/y), the headline rate is down 3.5%, and the core rate edged down from 4.0% y/y to 3.8%. Treasuries moved higher in reaction to the retail and inflation data.

The reading of inflation at the wholesale level gives credence to an environment of falling prices is the current concern. While the Fed has pumped massive amounts of liquidity into the system and the monetary base has increased, the money multiplier has plunged.

Later today on the economic calendar, business inventories are expected to be released and are forecast to decline by 1.2%.

Also later today, President Barack Obama is expected to give a speech at Georgetown University, in which he is expected to discuss the state of the economy when Obama took office in January, steps his administration has taken in its first three months, and what still needs to be done to stabilize the economy.

Meanwhile, traders will likely also be paying some attention to Federal Reserve Chairman Ben Bernanke's Executive Lecture at Morehouse College on "Four Questions about the Financial Crisis," which will include a Q&A session. Bernanke's speech is expected at 1:30 p.m. ET.

Banks boost Europe

Stocks in Europe are nicely higher in afternoon action with traders making up for lost time after being on holiday yesterday, as financials are leading the way on the better-than-expected profit results from Goldman Sachs, which are buoying the group. Strength in basic materials is also supporting the advance across the pond. On the equity front, Philips Electronics (PHG $17), Europe's largest consumer electronics maker, posted a first loss that was larger than expected on sluggish sales amid the global contraction. The company's chief executive said, "In the first quarter of 2009 we have seen a significant further deterioration of our markets." However, shares are up solidly, and the company said it plans to speed up its restructuring efforts in 2Q, especially in its lighting unit, which is expected to increase annual savings by 100-500 million euros. The company said it does not expect to announce any additional job cuts on top of its previously announced 6,000 jobs this year.

Asia gains ground on most fronts as financials support sentiment

Stocks in Asia were mostly higher, led by financials, which received a boost from Goldman's upbeat earnings report. Shares in Hong Kong led the way—playing catch up after being closed yesterday—as the Hang Seng Index jumped 4.6% after HSBC (HBC $35) moved higher after it announced yesterday that it is considering the sale of three of its major office buildings to boost its capital position. Stocks in Australia also had to play catch up after not trading yesterday, with mining firms gaining ground, helping shares of Qantas (QUBSF $1) close higher after overcoming steep losses that stemmed from the airline lowering its forecast for full-year profits and announced a 5% reduction of its workforce as demand softened amid the global recession. However, stocks in Japan fell as the Nikkei 225 Index fell almost 1% on continued fears about the automakers and after Sumitomo Realty & Development (SURDF $9) posted lower-than-estimated full-year profits on securities writedowns. Elsewhere, the Straits Times Index in Singapore managed to rise about 1.1% despite the trade ministry saying the economy may contract between 6-9%—the third downward revision this year—as the global recession takes its toll on exports and manufacturing.