ASIAN MORNING BRIEFING: U.S. Stocks End Lower After Retail Sales Disappoint -- FEC

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Date Posted: 02:40:33 07/17/12 Tue
Author: 17/07/2012 8:20AM
Subject: ASIAN MORNING BRIEFING: U.S. Stocks End Lower After Retail Sales Disappoint

ASIAN MORNING BRIEFING: U.S. Stocks End Lower After Retail Sales Disappoint
17/07/2012 8:20AM

DJIA 12727.21 -49.88 -0.39%
Nasdaq 2896.94 -11.53 -0.40%
S&P 500 1353.64 -3.14 -0.23%
FTSE 100 5662.43 -3.70 -0.07%
Xetra DAX 6565.72 +8.62 +0.13%

2Y Tsy 100 1/32 +1/32 0.230% -2.4BP
5Y Tsy 100 24/32 +5/32 0.596% -3.5BP
10Y Tsy 102 19/32 +10/32 1.466% -3.3BP

USD/JPY 78.82-86 -0.54%
Range 79.28-78.70
EUR/USD 1.2272-76 +0.05%
Range 1.2290-1.2176
AUD/USD 1.0246-48 +0.00%
Range 1.0259-1.0204

USD/JPY 1M Vol 6.50/7.00%
EUR/USD 1M Vol 9.5/9.8%
AUD/USD 1M Vol 9.25/9.65%

Comex Gold $1,591.60 -$0.40
Comex Gold Range $1,577.20-$1,594.60
Nymex Crude (NY) $88.43 +$1.33

U.S. SUMMARY & ASIAN OUTLOOK:
STOCKS:
Industrial and consumer shares led stocks lower Monday, as U.S. retail sales disappointed and investors braced for a busy week of earnings.

The Dow Jones Industrial Average dropped 49.88 points, or 0.4%, to 12727.21, the seventh decline in eight sessions. The retreat followed a 204-point rally by blue chips Friday.

The Standard & Poor's 500-stock index eased 3.14 points, or 0.2%, to 1353.64. The Nasdaq Composite lost 11.53 points, or 0.4%, to 2896.94.

"We're taking a breather from an enormous Friday," said Doug Cote, chief market strategist at ING Investment Management, which oversees $165 billion of assets. "This is a big earnings week. That is what the market is focused on right now."

Citigroup edged up 0.6% after reporting better-than-expected earnings. Gannett rose 2.7% as the USA Today publisher's profit dropped less than forecast.

Companies such as International Business Machines and General Electric are due to report in coming days. Monday, GE shares slipped 0.9% after Morgan Stanley analysts cut their rating on the shares. IBM eased 0.7%.

U.S. retail sales fell for the third straight month in June, the Commerce Department reported, bucking economists' projections for a slight increase and marking the first three-month streak of declines since 2008.

"There is some nervousness in the market over this morning's retail sales report," said Michael Strauss, chief investment strategist at Commonfund in Wilton, Conn., which manages $26 billion of assets.

Chinese Premier Wen Jiabao warned that a recovery in the country's economic growth isn't yet stable, adding to investors' worries about the health of the world's second-largest economy. Meanwhile, the International Monetary Fund trimmed its forecast for global economic growth by 0.1 percentage point to 3.5%.

An index on manufacturing activity in New York rose more than expected this month, according to the New York Federal Reserve Bank's Empire State Manufacturing Survey. A measure of new orders, one component of the index, contracted for the first time since November 2011.

U.S. business inventories rose more than expected in May, the Commerce Department reported.

In the corporate arena, coal mining company Alpha Natural Resources tumbled 10%, the biggest drop in the S&P 500, after BMO Capital Markets cut its stock-investment rating on the shares.

Facebook fell 8.1% for its fifth straight daily decline.

Human Genome Sciences gained 4.5% in response to news GlaxoSmithKline is nearing an agreement to buy the company for as much as $3 billion.

Asian share markets were mixed Monday, with China shares ending at a more than three-year low as profit warnings from blue-chip companies heightened concerns about the outlook for the economy there. Hong Kong shares, meanwhile, edged higher, getting a boost from Wall Street's rally Friday, although concerns about Chinese firms' earnings dented optimism. Japanese markets were closed for a holiday.

Analysts said they expect China shares to keep consolidating in the short term and that the Shanghai Composite is likely to drop to psychologically important support at 2100 this week.

"Sentiment is severely battered by a string of negative news, especially the earnings warnings from some blue chip companies like ZTE," said Central China Securities analyst Zhang Gang.

"In their latest remarks, neither Premier Wen Jiabao nor Vice Premier Li Keqiang revealed details about how the government would boost growth. The lack of such details damped expectations for aggressive policy easing in the short term."

"A lot of Chinese firms are expected to report weak first-half earnings, judging from the recent slew of profit warnings. Investors are likely to continue staying on the sidelines," said Ben Kwong, chief operating officer at KGI Asia.

Mr. Kwong added that investors will be looking for clues of possible further monetary stimulus during U.S. Federal Reserve Chairman Ben Bernanke's testimony to the U.S. Congress Tuesday and Wednesday.

The IMF Monday lowered its estimates for China's economic growth this year and next, and warned of the possibility of a hard landing there in the medium term.

The IMF dropped its forecast for this year's gross domestic product growth in China to 8.0% from its previous forecast of 8.2% in April. It lowered its estimate of next year's growth rate to 8.5% from 8.8% previously.

The IMF raised its 2012 economic growth forecast for Japan to 2.4% from 2.0%, positioning it as the best performer among its peers in the Group of Seven industrialized economies.

The IMF expects 2013 growth at 1.5%, a cut from the April projection of 1.7%. Many economists believe that growth in the economy will slow as the impact from reconstruction spending following the March 2011 earthquake and tsunami starts to wear off.

Nymex crude prices rallied Monday, ending higher for the fourth session in a row as investors harbored hopes Mr. Bernanke could soon signal more stimulus is on the way.

Comex gold futures ended flat Monday as investors marked time ahead of Mr. Bernanke's two-day testimony.

Base metals closed little changed on the London Metal Exchange Monday as investors weighed weak economic indicators against the hope of further stimulus by central banks.

FOREX:
The dollar fell against major currencies Monday after a drop in U.S. retail sales raised expectations for more economic stimulus from the Federal Reserve.

U.S. retail sales fell for the third consecutive month in June, down 0.5%, worse than the average 0.2% gain economists expected. The last time retail sales fell three months in a row was in late 2008, when the U.S. economy was heading into a recession.

The International Monetary Fund also cut its global growth outlook, warning that the economic slowdown could accelerate if policy makers fail to take stronger action.

The dollar weakened on concerns that the slowing economy may prompt the Fed to ease monetary policy as a stimulus measure.

The greenback fell especially sharply against the yen, its chief rival as a safe haven for investors worried about a global slowdown. The dollar hit its weakest point against the yen in about a month, and was fetching Y78.87 from Y79.19 late Friday.

The retail sales release comes ahead of Federal Reserve Chairman Ben Bernanke's testimony before a U.S. Senate committee Tuesday, which market participants are watching closely for any clues of further Fed action. The Fed's next two-day policy meeting begins July 31.

"A lot of people have been of the opinion that while further quantitative easing is a possibility, it's still several steps down the road, but now there's some suggestion that Bernanke is a lot closer to pulling the trigger than people previously felt," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York.

The Australian and Canadian dollar should propel higher if Mr. Bernanke hints strongly at further action, since those currencies appreciated the most against the dollar after previous rounds of U.S. quantitative easing, said Charles St. Arnaud, currency strategist at Nomura Securities in New York.

The Australian dollar was at $1.0249 from $1.0226 late Friday.

The euro also gained against the dollar, paring earlier losses, as the weak U.S. data overshadowed euro-zone concerns. The common currency initially fell on reports that the European Central Bank supported imposing losses on Spanish bondholders, further pressured by the German Constitutional Court's announcement that it wouldn't decide on the constitutionality of the European bailout fund until Sept. 12.

The euro climbed to $1.2272 by the end of New York trading, from $1.2250 late Friday. Against the yen, the euro was at Y96.79 from Y97.01.

Another beneficiary of dollar outflows was the U.K. pound, which was at $1.5636 from $1.5576.

The ICE Dollar Index, which tracks the dollar against a basket of currencies, was at 83.117 from 83.349.

BONDS:
U.S. Treasury yields fell to the brink of new all-time lows Monday as concerns about a U.S. economic slowdown spurred demand for financial safety, extending the market's rally this month.

Benchmark 10-year note yielded as little as 1.440% midday, a hair away from its 1.437% record-low set June 1. The yield on five-year notes sank as low as 0.577%, a new record for that maturity. Bond yields fall when prices rise.

A retail industry report early Monday showed sales falling for the third consecutive month in June, stoking fears about a snag in the U.S. recovery. Consumer spending, a crux of the U.S. economy, remains constrained by high unemployment and households' efforts to work off debt.

The report fired up demand for the perceived safety of U.S. government bonds.

"Clearly things are slowing down, more so than most had expected," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. "For a while, everyone was focused just on Europe. Now we're seeing the slowdown here and in China--major drivers of global growth."

Monday's Treasury gains happened on light volume, though, with Japan out on holiday and many investors opting to wait to hear from Federal Reserve Chairman Ben Bernanke. He is scheduled to deliver his semi-annual congressional testimony Tuesday and Wednesday, which is expected to shed light on his outlook on the economy and monetary policy.

(MORE TO FOLLOW) Dow Jones Newswires

July 16, 2012 18:20 ET (22:20 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

Updates
17/07/2012 8:20AM ASIAN MORNING BRIEFING: U.S. Stocks End Lower -2-

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