The U.S. stock market is seeing a widespread decline as investors react to sluggish same-store sales figures and a disappointing look at weekly initial jobless claims. All of the major averages are in negative territory but stocks are off their worst levels of the session. The U.S. dollar's bounce on Wednesday is already fading but it is not having much affect on commodities. Gold prices are up less than $2 at $1,197.50 an ounce. Crude oil futures are down -0.6% near $81.93 a barrel. Natural gas is down -3.2%. Copper is off -1.6%. One commodity that is on the move is wheat. Too much rain in Canada, dry weather in eastern Europe, and a the worst drought in Russia in the last 50 years is driving wheat prices higher. Russian Prime Minister Vladmir Putin helped boost wheat prices more than +6% this morning when he announced Russia would ban exports of wheat (and barley, rye, corn and flour) for the rest of 2010.
Foreign markets were mixed and for most of them Thursday was a quiet day of trading. The standout was Japan's NIKKEI index. After yesterday's -2.1% decline the NIKKEI surged +1.7% thanks to the dollar's bounce against the yen. Plus Toyota Motor Corp rallied following its best earnings report in two years. In Europe the Bank of England and the European Central Bank both left rates unchanged at record lows, 0.5% and 1.0%, respectively. Meanwhile British bank Barclays delivered a disappointing earnings report and Unilever, the European consumer goods giant, fell more than 5% on bearish comments that rising commodity costs and stronger competition would hurt their second half.
ECB President Jean-Claude Trichet made headlines with his positive remarks that the Euro zone economy was improving a lot faster than expected. Yet he hedged his comments with a warning that growth would remain moderate and uneven in this "environment of uncertainty". Reinforcing Trichet's comments was a much stronger than expected German Factory Orders report. Economists were expecting factory orders to rise from 0.5% in May to +1.4% in June. Instead the Economy Ministry said June's factory orders surged +3.2% from a revised 0.1% in May. At the end of the day the German DAX index closed nearly flat with a +0.04% gain. The French CAC-40 rose +0.09%. The English FTSE lost -0.38%. The Chinese Shanghai index lost -0.6%. The Hong Kong Hang Seng closed up +0.01% and as mentioned earlier the Japanese NIKKEI rallied +1.7%.
Here at home in the U.S. the markets are waiting on the nonfarm payrolls (jobs) report tomorrow morning before the opening bell. In the mean time stocks are reacting to disappointing July same-store sales data from the retail industry and an unexpected jump in weekly initial jobless claims. Economists were expecting initial jobless claims to drop to 455,000 last week. The Labor Department reported a +19,000 jump in new claims to 479,000. This is in contrast to yesterday's bullish ADP employment numbers and the ISM services employment gauge, which both came in better than expected. Currently the market is expecting the July jobs number to show a -65,000 loss due to the expiration of approximately 160,000 temporary census jobs. The real number traders will be watching is the growth of private sector jobs, estimated at +90,000.
Consumer spending is widely quoted as 70% of the U.S. economy, which explains why there is so much focus on the consumer. Wall Street was hoping that July same-store sales figures would increase +3.1%. Of the 28 retailers that Reuters tracks on a monthly basis the average gain was +2.9%. Only nine companies beat estimates. 17 of the 28, almost 61%, missed analysts estimates for their same-store sales growth. The tone of the reports were somber with talk of a challenging environment and tepid consumer spending. Some of the teen retailers really suffered. July is normally a big discount and clearance month so the pace of sales is even more disappointing. Plus, this is an early look at the back-to-school shopping season, which doesn't bode well for August.
It is worth noting that July marked the 11th consecutive monthly gain in same-store sales but it was the fourth month n a row that sales came in under expectations. A year ago same-store sales fell -5.1% and year over year comparisons will start to get tougher as we move into the fall. Here is a list of some of the bigger retailers that reported their same-store sales figures this morning. Unfortunately, our nation's largest retailer, Wal-Mart (WMT), doesn't report monthly same-store sales figures any more.
Limited (LTD) +12.0%
Zumiex Inc. (ZUMZ) +9.4%
Nordstrom (JWN) +7.6%
Macy's (M) +7.3%
Abercrombie (ANF) +7.0%
Saks (SKS) +6.4%
Costco (COST) +6.0%
Kohl's (KSS) +4.1%
BJ's Wholesale Club (BJ) +2.8%
Target (TGT) +2.0%
TJX Cos (TJX) +2.0%
Ross Stores (ROST) +2.0%
Aeropostale (ARO) +1.0%
Gap Inc (GPS) +1.0%
American Eagle (AE) +0.0%
Bon-Ton Stores (BONT) -0.3%
JC Penney (JCP) -0.6%
Dillard's (DDS) -3.0%
Hot Topic (HOTT) -9.0%
The Buckle (BKE) -9.3%
In other news mortgage rates fell to all-time lows - again. The government-sponsored Freddie Mac said that the average rate for a 30-year mortgage fell to 4.49% this week from 4.54% a week ago. These are the lowest rates since Freddie Mac began tracking this data back in 1971. The last time interest rates on mortgages were lower was back in the 1950s when mortgages were only 20 or 25 years long. Strict new lending requirements and weakness in home values is limiting how many consumers can successfully apply for a new loan or refinance.
Washington was making headlines this morning. The Senate just voted 61-39 to approve a $26 billion aid package for several states facing massive budget shortfalls. The bill provides $16.1 billion in Medicaid and $10 billion to stall the layoffs of public school teachers and first responders. According to democrats this bill will save 290,000 jobs. The GOP is against it claiming the $787 billion stimulus package was supposed to help needy states. The bill now moves to the House for a vote next week.
Speaking of Washington and bills, it looks like Social Security is having trouble paying its bill. There was an article out this morning that said Social Security payments will "exceed receipts" in 2010 for the first time since 1983. Evidently this is supposed to be a temporary challenge but long-term the forecast has not changed. Social Security is expected to run out of money in 2037. By that time the number of beneficiaries will greatly exceed the number of workers paying into the fund.
In the last hour stocks have made a bounce attempt but the markets remain underwater. The best performing sectors are oil services, defense, retailers, insurance, and railroads. The worst performers are airlines, banks, and internet stocks.
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