U.S. equities bounced off their lows to finish mixed amid the largest drop in retail sales in nine years.
Treasury yields were lower following the disappointing retail sales report, as well as a rise in jobless claims, while the U.S. dollar turned lower to end the day with a modest loss.
Crude oil prices reversed to the upside to finish higher and gold also gained ground.
The Dow Jones Industrial Average declined 104 points (0.4%) to 25,439
The S&P 500 Index lost 7 points (0.3%) to 2,746
The Nasdaq Composite added 7 points (0.1%) to 7,427
In heavy volume, 949 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq
WTI crude oil advanced $0.51 to $54.41 per barrel and wholesale gasoline was up $0.04 to $1.51 per gallon
The Bloomberg gold spot price increased $5.99 to $1,312.26 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.1% at 97.01
Retail sales surprisingly drop by most in nine years
Advance retail sales for December—this report was postponed due to the government shutdown—fell 1.2% month-over-month, versus the Bloomberg forecast of a 0.1% gain, and November’s figure was revised lower to a 0.1% increase. Last month’s sales ex-autos were down 1.8% m/m, compared to expectations to match November’s revised flat reading. Sales ex-autos and gas decreased 1.4%, compared to estimates of a 0.4% gain, and November’s figure was unrevised at a 0.5% rise. The control group, a figure used to calculate GDP, dropped 1.7%, versus projections of a 0.4% gain, and compared to November’s upwardly-revised 1.0% increase.
This was the biggest drop in nine years as all but two of the thirteen categories fell, led by sales at gasoline stations, and sporting goods, hobby, musical instrument, & book stores. Non-store retailers—which include online sales—posted a 3.9% drop, though sales of autos and at building materials & garden equipment stores were the only groups to post an increase.
The report seemed to cause recession concerns to flare-up, but the data is a bit stale after being delayed by four weeks. Some concerns about data reliability are also emerging given the notable divergence from recent reports that showed the labor market remains solid and wage growth is accelerating, while figures released during the holiday shopping season suggested consumer spending was healthy
The Producer Price Index (PPI) showed prices at the wholesale level in January dipped 0.1% m/m, compared to forecasts of a 0.1% gain, and following December’s upwardly-revised 0.1% decline. The core rate, which excludes food and energy, was up 0.3% m/m, versus expectations of a 0.2% gain, and after December’s upwardly-adjusted flat reading. Y/Y, the headline rate was 2.0% higher.
Treasuries were higher, as the yield on the 2-year note fell 3 basis points (bps) to 2.50%, the yield on the 10-year note shed 4 bps to 2.66%, and the 30-year bond rate declined 2 bps to 3.01%. The markets grappled with the confusing retail sales report and paying attention to high-level trade talks between the U.S. and China, with reports suggesting progress and the possibility the March 1 deadline could be extended, while Congress is set to vote on a tentative deal to avert another government shutdown and focus will then likely turn to whether President Donald Trump will sign the deal.
More data to help complete the inflation picture will come tomorrow in the form of the Import Price Index, anticipated to show prices were flat m/m during January following the 1.0% m/m decline in December, while manufacturing data will also come into focus, courtesy of the Federal Reserve’s industrial production and capacity utilization report, projected to indicate production was up 0.1% m/m for January and utilization nudged higher to 78.8%, and the Empire Manufacturing Index, with economists expecting a level of 7.6, with a reading above zero indicating expansion in activity.
Europe mostly lower following U.S. data, Asia mixed
European equities gave up early gains and finished mostly lower on the heels of the lackluster economic data in the U.S., but optimism surrounding high-level trade talks between the U.S. and China, as well as mostly positive earnings reports within the region, kept the losses in check.
In economic news, Eurozone Q4 GDP growth came in at a 1.2% y/y pace, matching estimates, even as Germany’s economic output remained subdued. The euro was higher versus the U.S. dollar, while the British pound saw some pressure, as lawmakers continued to debate a Brexit deal. Bond yields in the region were mostly lower.
Stocks in Asia finished mixed with the markets paying close attention to high-level trade talks between the U.S. and China, while digesting some mixed economic data in the region. China’s trade data for January came in well above expectations, while there was some focus on the impact of the timing of the Lunar New Year, though Japan reported that its Q4 GDP returned an expansion of 1.4% on a quarter-over-quarter annualized basis, matching estimates and rebounding from Q3′s 2.6% contraction.
Mainland Chinese equities and those traded in Hong Kong declined, while stocks in Japan finished flat, with the yen holding onto a recent decrease.