Morning Market Update

Inflation Tame But Retail Sector Data has Bulls Coming Up Lame

US equity markets are under some pressure in morning action as traders digest another subdued reading on inflation, while sentiment toward the retail sector is being somewhat soured by a smaller-than-expected increase in July retail sales and disappointing guidance from J.C. Penney Co. Treasuries are higher, extending modest gains in the wake of the inflation and retail sales data, while a preliminary reading of August consumer sentiment is on the horizon, along with a report on business inventories. In other corporate earnings news, Nordstrom Inc posted profits and sales that matched expectations, while NVIDIA Corp missed on the top and bottom lines and issued a disappointing 3Q outlook. Overseas, Asia was mostly higher amid some bargain hunting, while Europe is under some pressure even after some better-than-expected GDP reports across the pond.

As of 8:54 a.m. ET, the September S&P 500 Index Globex future is 4 points below fair value, the Nasdaq 100 Index is 8 points below fair value, while the DJIA is 23 points below fair value. Crude oil is up $0.16 at $75.90 per barrel, and the Bloomberg gold spot price is down $0.08 at $1,213.78 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is flat at 82.63.

J.C. Penney Co. Inc. (JCP $21) reported 2Q EPS of $0.06, one penny above the Reuters estimate, with revenues roughly flat year-over-year (y/y) at $3.94 billion, compared to the $3.96 billion that the Street was looking for. Same-store sales—sales at stores open at least a year—increased by 0.9% y/y, and the company grew its internet sales. JCP said back-to-school selling is off to a “good start.” However, the company issued 3Q EPS that missed analysts’ estimates and lowered its full-year EPS outlook, due to what “continues to be an uncertain consumer climate.”

In related industry news, Nordstrom Inc. (JWN $33) announced 2Q EPS of $0.66, matching expectations, with revenues increasing 12.7% y/y to $2.4 billion, also inline with expectations. Same-store sales rose 8.4% y/y, and the company reaffirmed its full-year EPS outlook.

NVIDIA Corp. (NVDA $9) posted adjusted 2Q earnings of $0.03 per share, below the $0.10 that analysts were anticipating, with revenues rising 4.5% y/y to $811 million, compared to the $826 million that the Street was looking for. NVDA issued 3Q EPS guidance that missed forecasts.

Retail sales rise but miss forecasts, consumer prices gain, sentiment check on deck

Advance retail sales for July rose 0.4%, compared to the Bloomberg forecast of economists that called for an increase of 0.5%, but June’s 0.5% drop was revised to a 0.3% decline. July sales ex-autos gained 0.2%, short of the expectation of a 0.3% increase, while June’s 0.1% dip was unrevised. Sales ex-autos and gas declined 0.1% in July, versus the 0.1% increase that was anticipated, but its June figure was revised to a better-than-expected 0.2% gain, from an initial 0.1% rise.

The Consumer Price Index showed prices at the consumer level were up 0.3% in July month-over-month (m/m), above the forecasted 0.2% gain by economists, after dipping 0.1% in June. Meanwhile, the core rate, which strips out food and energy, increased 0.1% in July, after rising 0.2% in June, matching estimates. On a year-over-year basis, consumer prices were up 1.2% in July, up from the 1.1% rate in June, and the core CPI was 0.9% higher y/y, after rising by the same rate in June.

Later this morning, the economic calendar will yield the releases of the preliminary University of Michigan’s Consumer Sentiment Index, forecasted to increase from 67.8 in July to 69.0 in August, as well as business inventories, which are expected to increase 0.2% in June.

Treasuries are higher, modestly extending an early advance following the retail sales and consumer price inflation reports.

Losses seen across the pond despite strong European economic growth reports

Stocks in Europe are under pressure in afternoon action led by a solid decline in financials and as sentiment is finding little support from a slew of better-than-expected GDP reports in the area. Euro-zone 2Q GDP expanded at a 1.0% rate quarter-over-quarter (q/q), after growing 0.2% in 1Q, and compared to the 0.7% increase that economists had expected. Also, on a y/y basis, the euro-area economy rose by 1.7%, after rising 0.6% the previous quarter, above the 1.4% increase that was forecasted. The euro-zone output was supported by stronger-than-expected growth in France and Germany, as separate reports showed these economies posted higher-than-anticipated expansion in 2Q. However, Spain’s 2Q GDP rose by a smaller-than-forecasted amount in 2Q versus 1Q, and contracted by a larger amount than anticipated compared to the same period last year. Other economic reports across the pond included a drop in France’s consumer prices in July compared to June that matched forecasts, and a larger-than-expected widening of the euro-zone trade surplus in June.

Meanwhile retailers are being bogged down by a sharp decline in shares of Delhaize Group (DEG $75) as the supermarket operator cut its full-year profit forecast on sluggish sales results in the US. The US accounts for two-thirds of the total revenue at the parent of Food Lion supermarkets.

The FTSE 100 Index is 0.3% lower, France’s CAC-40 Index is down 0.7%, Germany’s DAX Index is declining 0.6%, and Spain’s IBEX 35 Index is falling 0.7%.

Asia mostly higher to end weak week

Stocks in Asia moved mostly higher amid some bargain hunting follow the solid losses seen this week as the outlook for the global economic recovery took a hit as a slew of disappointing economic reports were reported. Japan’s Nikkei 225 Index increased 0.4%, with the yen losing some ground during the day’s trading session to help soothe profit concerns toward export issues that has accompanied the Asian currency’s recent ascent to a fifteen-year high versus the US dollar. However, after the closing bell in Japan, the yen moved back above the flatline versus the greenback as speculation that the Bank of Japan may intervene to stem the yen’s strength waned somewhat as Japanese officials have offered some commentary about the impact of extraordinary moves in the currency markets and that they are watching these events, but have not offered any indications that an intervention is in the offing. However, stocks in China were mixed, with the Hong Kong Hang Seng Index declining 0.2% while the Shanghai Composite Index increased 1.2%. After the close in Hong Kong, the government reported that 2Q GDP expanded more than forecasted compared to the same period a year ago, increasing 6.5%, after rising a downwardly revised 8.0% in 1Q, and compared to the 6.3% expansion that economists had expected. However, on a q/q basis, the economy expanded 1.4%, after a downwardly revised 2.1% gain in 1Q, and was softer than the 1.9% growth that was anticipated. Separately, Hong Kong’s Financial Secretary said the government will keep increasing land supply in an effort to curb property price increases, according to Bloomberg.

Meanwhile, South Korea’s Kospi Index increased 1.4% as bargain hunting was seen in technology issues, while a solid gain in shares of Korean Air Lines Co. after its better-than-forecasted profit report aided the advance in the region. Elsewhere, Taiwan’s Taiex Index rose 0.8%, Australia’s S&P/ASX 200 Index advanced 1.3%, and India’s BSE Sensex 30 Index increased 0.5%. In other economic news in the region, New Zealand’s retail sales rose more than expected in June, and the NZX 50 Index gained 0.3%. Elsewhere in equity news, shares of Genting Singapore (GIGNY $50) posted sharp gains after the casino operator posted favorable 2Q earnings and Singapore’s Straits Times Index rose 0.4%.