Europe Fears Snap Three-Day Winning Streak
Despite some better-than expected US economic and earnings news, US stocks fell short of notching a fourth-straight day of gains after a meeting between German and French leaders offered little in the way of any solid plans to combat the eurozone debt crisis. German Chancellor Merkel and French President Sarkozy proposed better economic coordination in the region and said they were working on “ambitious” joint proposals, but any significant change on their stance surrounding the eurozone’s bailout facility and the possibility of Eurobonds in the near future lacked substance.
Treasuries finished higher despite better-than-expected reports on US housing and industrial production, along with a higher-than-anticipated rise in import prices, as Fitch Ratings affirmed the US’ triple-A credit rating. Meanwhile, gold rose solidly and crude oil found pressure, while the US dollar gained against the euro following the conclusion of the eurozone meeting. On the equity front, Dow members Wal-Mart Stores and Home Depot topped analysts’ forecasts for 2Q, shares of Urban Outfitters suffered after the specialty retailer offered some cautious remarks, and Dell reported mixed results after the close.
The Dow Jones Industrial Average fell 77 points (0.7%) to 11,406, the S&P 500 Index lost 11 points (1.0%) to 1,193, and the Nasdaq Composite declined 32 points (1.2%) to 2,523. In moderate volume, 1.1 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil lost $1.23 to $86.65 per barrel, wholesale gasoline shed $0.02 to $2.85 per gallon, while the Bloomberg gold spot price jumped $19.98 to $1,786.00 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.1% higher at 73.95.
After the closing bell, Dell Inc. (DELL $16) reported 2Q EPS of $0.54, above the $0.49 expected by analysts surveyed by Reuters, but revenues of $15.66 billion fell short of the $15.77 billion forecast.
Dow member Wal-Mart Stores Inc. (WMT $52) reported 2Q earnings ex-items of $1.12 per share, above the $1.08 that analysts surveyed by Reuters had projected, with revenues growing 5.5% year-over-year (y/y) to $108.6 billion, exceeding the $108.2 billion that the Street anticipated. 2Q US same-store sales—sales at stores open at least a year—were flat y/y, excluding fuel sales, with a 5.0% increase at Sam’s Club offsetting a 0.9% decline in Walmart US sales.
The world’s largest retailer said its grocery and health and wellness business—representing two-thirds of its sales—continued to deliver positive sales, while its “hardlines and apparel businesses are improving.” WMT raised its full-year EPS guidance, reflecting “our confidence in the business for the back half of the year,” but it said it remains “concerned” about the economic pressure on its customers and the uncertain impact it can have on their shopping behavior. Shares were nicely higher.
Meanwhile, fellow Dow component Home Depot Inc. (HD $33) announced 2Q profits of $0.86 per share, three cents above the Street’s expectations, with revenues increasing 4.2% y/y to $20.2 billion, topping the $20.0 billion that analysts had estimated. Same-store sales for the quarter increased 4.3% y/y, with US sales rising 3.5%. The world’s largest home improvement retailer said its 2Q results were driven by a rebound in its seasonal business, storm-related repairs, and strength in its core categories. HD raised its full-year EPS guidance. HD finished over 5% higher.
In other retail earnings news, shares of Urban Outfitters Inc. (URBN $28) were solidly lower after the specialty retailer noted in a conference call with analysts, “we believe the recent political and macroeconomic events have influenced our customer, especially at Anthropologie, where the trend has slowed compared to the other brands.” The company added that “we remain cautious for the second half,” anticipating gradual improvements in same-store sales and performance over the balance of the year and into spring 2012. The comments came as the company reported 2Q EPS and revenues that beat analysts’ estimates, while net same-store sales declined.
Housing and industrial production positively surprise, while import prices rise
Housing starts (chart) for July declined by a smaller rate than expected, falling 1.5% m/m to an annual rate of 604,000 from a downwardly revised 613,000 in June, above the expectations of economists, which called for starts to come in at 600,000. However, building permits fell more than forecasted, dropping 3.2% m/m in July to an annual rate of 597,000, after June’s downward revision to a 617,000 rate. The expectation was for permits to come in at 605,000 units.
With household finances under pressure from high unemployment, deleveraging, tougher credit standards and a belief that housing prices may continue to fall, consumers have been increasingly renting instead of buying. As such, the multi-family sector has outpaced single-family activity, with multi-family permits up 16.3% y/y and starts surging by nearly 67% y/y. Meanwhile, single-family activity is nearly unchanged from a year ago, and on a m/m basis starts fell 4.9% m/m and permits gained 0.5% m/m.
Elsewhere, industrial production in July rose by a better than expected 0.9% m/m, while the forecast was for a 0.5% increase. Additionally, prior months were revised slightly upward, with June coming in at a 0.4% m/m gain. July’s increase was led by a 5.9% jump in auto-related production, while output for other durable goods rose, with nearly a 1% gain in home electronics and miscellaneous goods. Nondurable consumer goods rose 0.5%, paced by a 1.5% gain in utility output. Furthermore, business equipment increased 0.6% and has gained 8.5% over the past 12 months. Areas of weakness included clothing and chemical products, and a decline in defense and space equipment. Capacity utilization posted a better gain than forecasted, rising to 77.5% from an upwardly adjusted 76.9% in June, while the expectation was for 77.0%. With the rise in July, utilization is now 2.2% above the rate from a year earlier, but remains 2.9% below its average rate from 1972 to 2010.
In other economic news, the Import Price Index unexpectedly increased, rising 0.3% month-over-month (m/m) for July, compared to the expectation of economists, which called for the index to decrease by 0.1%. The surprising increase follows the 0.6% decline seen in June, which was revised from an initially reported 0.5% drop. Year-over-year, import prices are higher by 14.0%, versus the 13.4% forecast of economists, and the upwardly revised 13.7% gain that was posted in June.
Treasuries finished higher following the data and amid the decline in stocks, with the yield on the 2-year note down 1 bp to 0.19%, while the yield on the 10-year note was 9 bps lower at 2.23%, and the 30-year bond declined 11 bps to 3.66%. Bonds extended gains after Fitch Ratings affirmed its triple-A credit rating on the US, while keeping its outlook at stable, noting that, “We still believe that the US is an exceptionally strong credit,“ and “The underlying economic fundamentals are very strong and that includes the global reserve currency status of the dollar.” Fitch added that “relative to some of its other major triple-A peers, at this point in time, we don’t think the US is materially weaker than some of those,” per Dow Jones Newswires.
European economic data exacerbates negative sentiment overseas
Eurozone 2Q GDP expanded at a smaller-than-forecasted rate, led by Germany—the eurozone’s largest economy—adding further pessimism to investors’ already-dour mood. 2Q GDP in the eurozone grew by 0.2% quarter-over-quarter (q/q), down from the 0.8% expansion seen in 1Q, and compared to the 0.3% increase that economists forecasted. Year-over-year, eurozone output gained 1.7%, decelerating from the 2.5% growth seen in 1Q, and below the 1.8% expectation. The region’s disappointing GDP figure came as the German economy showed a 0.1% q/q rate of growth, well below the 0.5% increase that was projected, and a sharp deceleration from the downwardly revised 1.3% gain posted in 1Q.
Meanwhile, the highly-anticipated post-meeting press conference following discussions between Germany and France over the eurozone debt contagion crisis lacked any decisive plans to combat the dilemma. During the press conference, German Chancellor Merkel and French President Sarkozy noted that the two eurozone nations are working on “ambitious” joint proposals to defend the euro, per Bloomberg, and the eurozone needs more economic coordination, while also proposing a financial transactions tax in September and a eurozone economic council. On the topic of Eurobonds, the two leaders said they could be imagined in the long-term, but downplayed the benefits of issuing the instrument to solve the crisis. Concerning the size of the region’s bailout facility, known as the European Financial Stability Facility (EFSF), Sarkozy noted that the fund is sufficient at its current size.
In other economic news across the pond, UK consumer prices came in slightly hotter than expected for July, while a separate report showed UK retail prices fell inline with forecasts m/m for July.
Economic news in Asia/Pacific offered little help to sentiment in the region that found some pressure following the disappointing GDP report out of the eurozone. India’s wholesale prices, although decelerating in July from June, came in slightly hotter than expected, fostering some uneasiness regarding further monetary policy tightening, while a report showed China’s Leading Index accelerated m/m in June. Elsewhere, the Reserve Bank of Australia (RBA) released the minutes from its early August policy meeting, noting that the “case against tightening at this meeting was that downside risks to demand had probably increased, as a result of the acute uncertainty in global financial markets.”
Inflation expected to remain subdued
Tomorrow brings the release of the Producer Price Index (PPI), forecasted to rise 0.1% m/m in July, after falling 0.4% in June. Excluding food and energy, the core PPI is expected to increase by 0.2%, while gaining 0.3% in June. Compared to the same period last year, the headline and core PPI rates are forecasted to tick higher by 7.0% and 2.3%, respectively. In addition to today’s Import Price Index, and the expectation of Thursday’s Consumer Price Index, the low level of core inflation in an economy that continues to post slow growth is putting little upward pressure on prices and has kept the Federal Reserve accommodative.
Tomorrow’s international economic calendar offers the current account balance and CPI from the eurozone, employment figures from the UK, PPI from New Zealand and wage data from Australia. As well, the minutes from the Bank of England’s last monetary policy meeting will be released.
The Dow Jones Industrial Average fell 77 points (0.7%) to 11,406, the S&P 500 Index lost 11 points (1.0%) to 1,193, and the Nasdaq Composite declined 32 points (1.2%) to 2,523. In moderate volume, 1.1 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil lost $1.23 to $86.65 per barrel, wholesale gasoline shed $0.02 to $2.85 per gallon, while the Bloomberg gold spot price jumped $19.98 to $1,786.00 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.1% higher at 73.95.
After the closing bell, Dell Inc. (DELL $16) reported 2Q EPS of $0.54, above the $0.49 expected by analysts surveyed by Reuters, but revenues of $15.66 billion fell short of the $15.77 billion forecast.
Dow member Wal-Mart Stores Inc. (WMT $52) reported 2Q earnings ex-items of $1.12 per share, above the $1.08 that analysts surveyed by Reuters had projected, with revenues growing 5.5% year-over-year (y/y) to $108.6 billion, exceeding the $108.2 billion that the Street anticipated. 2Q US same-store sales—sales at stores open at least a year—were flat y/y, excluding fuel sales, with a 5.0% increase at Sam’s Club offsetting a 0.9% decline in Walmart US sales.
The world’s largest retailer said its grocery and health and wellness business—representing two-thirds of its sales—continued to deliver positive sales, while its “hardlines and apparel businesses are improving.” WMT raised its full-year EPS guidance, reflecting “our confidence in the business for the back half of the year,” but it said it remains “concerned” about the economic pressure on its customers and the uncertain impact it can have on their shopping behavior. Shares were nicely higher.
Meanwhile, fellow Dow component Home Depot Inc. (HD $33) announced 2Q profits of $0.86 per share, three cents above the Street’s expectations, with revenues increasing 4.2% y/y to $20.2 billion, topping the $20.0 billion that analysts had estimated. Same-store sales for the quarter increased 4.3% y/y, with US sales rising 3.5%. The world’s largest home improvement retailer said its 2Q results were driven by a rebound in its seasonal business, storm-related repairs, and strength in its core categories. HD raised its full-year EPS guidance. HD finished over 5% higher.
In other retail earnings news, shares of Urban Outfitters Inc. (URBN $28) were solidly lower after the specialty retailer noted in a conference call with analysts, “we believe the recent political and macroeconomic events have influenced our customer, especially at Anthropologie, where the trend has slowed compared to the other brands.” The company added that “we remain cautious for the second half,” anticipating gradual improvements in same-store sales and performance over the balance of the year and into spring 2012. The comments came as the company reported 2Q EPS and revenues that beat analysts’ estimates, while net same-store sales declined.
Housing and industrial production positively surprise, while import prices rise
Housing starts (chart) for July declined by a smaller rate than expected, falling 1.5% m/m to an annual rate of 604,000 from a downwardly revised 613,000 in June, above the expectations of economists, which called for starts to come in at 600,000. However, building permits fell more than forecasted, dropping 3.2% m/m in July to an annual rate of 597,000, after June’s downward revision to a 617,000 rate. The expectation was for permits to come in at 605,000 units.
With household finances under pressure from high unemployment, deleveraging, tougher credit standards and a belief that housing prices may continue to fall, consumers have been increasingly renting instead of buying. As such, the multi-family sector has outpaced single-family activity, with multi-family permits up 16.3% y/y and starts surging by nearly 67% y/y. Meanwhile, single-family activity is nearly unchanged from a year ago, and on a m/m basis starts fell 4.9% m/m and permits gained 0.5% m/m.
Elsewhere, industrial production in July rose by a better than expected 0.9% m/m, while the forecast was for a 0.5% increase. Additionally, prior months were revised slightly upward, with June coming in at a 0.4% m/m gain. July’s increase was led by a 5.9% jump in auto-related production, while output for other durable goods rose, with nearly a 1% gain in home electronics and miscellaneous goods. Nondurable consumer goods rose 0.5%, paced by a 1.5% gain in utility output. Furthermore, business equipment increased 0.6% and has gained 8.5% over the past 12 months. Areas of weakness included clothing and chemical products, and a decline in defense and space equipment. Capacity utilization posted a better gain than forecasted, rising to 77.5% from an upwardly adjusted 76.9% in June, while the expectation was for 77.0%. With the rise in July, utilization is now 2.2% above the rate from a year earlier, but remains 2.9% below its average rate from 1972 to 2010.
In other economic news, the Import Price Index unexpectedly increased, rising 0.3% month-over-month (m/m) for July, compared to the expectation of economists, which called for the index to decrease by 0.1%. The surprising increase follows the 0.6% decline seen in June, which was revised from an initially reported 0.5% drop. Year-over-year, import prices are higher by 14.0%, versus the 13.4% forecast of economists, and the upwardly revised 13.7% gain that was posted in June.
Treasuries finished higher following the data and amid the decline in stocks, with the yield on the 2-year note down 1 bp to 0.19%, while the yield on the 10-year note was 9 bps lower at 2.23%, and the 30-year bond declined 11 bps to 3.66%. Bonds extended gains after Fitch Ratings affirmed its triple-A credit rating on the US, while keeping its outlook at stable, noting that, “We still believe that the US is an exceptionally strong credit,“ and “The underlying economic fundamentals are very strong and that includes the global reserve currency status of the dollar.” Fitch added that “relative to some of its other major triple-A peers, at this point in time, we don’t think the US is materially weaker than some of those,” per Dow Jones Newswires.
European economic data exacerbates negative sentiment overseas
Eurozone 2Q GDP expanded at a smaller-than-forecasted rate, led by Germany—the eurozone’s largest economy—adding further pessimism to investors’ already-dour mood. 2Q GDP in the eurozone grew by 0.2% quarter-over-quarter (q/q), down from the 0.8% expansion seen in 1Q, and compared to the 0.3% increase that economists forecasted. Year-over-year, eurozone output gained 1.7%, decelerating from the 2.5% growth seen in 1Q, and below the 1.8% expectation. The region’s disappointing GDP figure came as the German economy showed a 0.1% q/q rate of growth, well below the 0.5% increase that was projected, and a sharp deceleration from the downwardly revised 1.3% gain posted in 1Q.
Meanwhile, the highly-anticipated post-meeting press conference following discussions between Germany and France over the eurozone debt contagion crisis lacked any decisive plans to combat the dilemma. During the press conference, German Chancellor Merkel and French President Sarkozy noted that the two eurozone nations are working on “ambitious” joint proposals to defend the euro, per Bloomberg, and the eurozone needs more economic coordination, while also proposing a financial transactions tax in September and a eurozone economic council. On the topic of Eurobonds, the two leaders said they could be imagined in the long-term, but downplayed the benefits of issuing the instrument to solve the crisis. Concerning the size of the region’s bailout facility, known as the European Financial Stability Facility (EFSF), Sarkozy noted that the fund is sufficient at its current size.
In other economic news across the pond, UK consumer prices came in slightly hotter than expected for July, while a separate report showed UK retail prices fell inline with forecasts m/m for July.
Economic news in Asia/Pacific offered little help to sentiment in the region that found some pressure following the disappointing GDP report out of the eurozone. India’s wholesale prices, although decelerating in July from June, came in slightly hotter than expected, fostering some uneasiness regarding further monetary policy tightening, while a report showed China’s Leading Index accelerated m/m in June. Elsewhere, the Reserve Bank of Australia (RBA) released the minutes from its early August policy meeting, noting that the “case against tightening at this meeting was that downside risks to demand had probably increased, as a result of the acute uncertainty in global financial markets.”
Inflation expected to remain subdued
Tomorrow brings the release of the Producer Price Index (PPI), forecasted to rise 0.1% m/m in July, after falling 0.4% in June. Excluding food and energy, the core PPI is expected to increase by 0.2%, while gaining 0.3% in June. Compared to the same period last year, the headline and core PPI rates are forecasted to tick higher by 7.0% and 2.3%, respectively. In addition to today’s Import Price Index, and the expectation of Thursday’s Consumer Price Index, the low level of core inflation in an economy that continues to post slow growth is putting little upward pressure on prices and has kept the Federal Reserve accommodative.
Tomorrow’s international economic calendar offers the current account balance and CPI from the eurozone, employment figures from the UK, PPI from New Zealand and wage data from Australia. As well, the minutes from the Bank of England’s last monetary policy meeting will be released.
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