U.S. retail sales unexpectedly flat in July U.S. retail sales were unexpectedly flat in July as Americans cut back on purchases of clothing and other goods, pointing to a moderation in consumer spending that could temper expectations of an acceleration in economic growth in the third quarter.
The Commerce Department said on Friday that the unchanged reading last month followed an upwardly revised 0.8 percent increase in June. Retail sales in June were previously reported to have increased 0.6 percent.
Sales rose 2.3 percent from a year ago. Excluding automobiles, gasoline, building materials and food services, retail sales were also unchanged last month after an unrevised 0.5 percent increase in June. (…)
Automobile, furniture and online sales were bright spots in July. Sales at auto dealerships increased 1.1 percent in July after rising 0.5 percent in June. Online retail sales jumped 1.3 percent, while receipts at clothing stores fell 0.5 percent.
CalculatedRisk has the chart:
U.S. producer prices fall on services, energy costs
The Labor Department said on Friday its producer price index for final demand dropped 0.4 percent last month, the first decline since March and the largest since September 2015. It increased 0.5 percent in June.
In the 12 months through July, the PPI slipped 0.2 percent after rising 0.3 percent in the 12 months through June. (…)
A key gauge of underlying producer price pressures that excludes food, energy and trade services was unchanged last month after rising 0.3 percent in June.
The so-called core PPI was up 0.8 percent in the 12 months through July. It increased 0.9 percent in the 12 months through June.
Doug Short has the chart:
Trucking Pushes For-Hire Shipments Higher for Third Straight Month
A new U.S. Transportation Department report shows the amount of freight carried by the nation’s for-hire transportation industry rose 0.6% in June from the month before, due in part to increased trucking shipments, and is up 0.4% from the same time in 2016.
The increases put the Freight Transportation Services Index (TSI) at a reading of 122.3, its third straight monthly gain, while the May reading was revised down slightly to 121.6 from 121.8.
The June recent figure is just 1.1% below the all-time record high level of 123.7 hit in December 2014 and is 29.1% above the April 2009 low during the most recent recession. (…)
The June Freight TSI increase from May was broad in terms of mode but with drops for water and rail intermodal, which declined after significant rises in May. The June gain was driven by growth in the mining, including oil and gas well drilling and servicing, utility and manufacturing sectors of the economy, according to the report.
The second quarter TSI increase of 2.2% from the first quarter is the first time the TSI rose three months in succession since December 2014. The three months of successive increases followed two months of successive declines, leaving the June level 0.2% below the level of January 2016.
The second quarter increase is also the largest quarterly rise since the first quarter of 2013. It followed two quarters of drops and declines in four of the previous five quarters.
China Economy Slows as Stimulus Impact Wanes A swath of economic activity—from factory output to investment and retail sales—slowed last month, reflecting renewed weakness in China’s economy.
Industrial production, long a rough proxy for growth in the world’s second-largest economy, rose 6.0% in July from a year earlier, according to government data released Friday. The pace was slower than the 6.2% growth recorded in June—a rate economists had expected would be sustained in July.
Investment in factories, buildings and other fixed assets in nonrural areas climbed 8.1% year over year in the January-July period, decelerating from the 9% increase in the first six months of the year and again lower than the 8.9% predicted by economists. (…)
Growth of private investment, which accounts for around 60% of total fixed-asset investment, slipped to a record low of 2.1% in the first seven months, shrugging off recent official efforts to slash red tape and reduce market barriers to encourage more spending. (…)
Meanwhile, retail sales, which have been a bright spot in the economy, also showed signs of softness, growing 10.2% in July from a year earlier, down from 10.6% in June. (…)
Chinese banks scaled bank lending in July to 463.6 billion yuan ($69.9 billion), far below June’s 1.38 trillion yuan, according to central bank data released Friday. Total social financing, a broad measure of credit in the economy that includes nonbank financing, came to 487.9 billion yuan in July, also down sharply from 1.63 trillion yuan in June.
The credit data provided further evidence that companies are reluctant to spend and instead are holding on to cash. China’s broadest measure of money supply, M2, decelerated to a 10.2% growth rate at the end of July compared with a year earlier, lower than the 11.8% rise at the end of June. The nation’s M1 money supply, a measure of liquid assets such as cash and demand deposits, sustained a robust 25.4% year-over-year pace in July compared with a 24.6% rate of growth a month earlier.
Charts via The Daily Shot:
China house price surge is over, says statistician
(…) Mr Sheng said after announcing broadly downbeat data that point to a deceleration of growth in housing and fixed asset investment: “There are big differences [in housing] between regions. But overall we can draw one conclusion: the high-growth period is over”.
Real estate investment and sales slowed for the third successive month in July, suggesting that economic growth would moderate in the third quarter after increasing 6.7 per cent over the first six months of this year.
The sector contributed 15 per cent of economic growth in the first quarter, according to government statistics; a figure that swells further if related sectors such as cement, iron and other materials are included.
Chi Lo, senior economist at BNP Paribas Investment Partners, estimates that the real estate sector ultimately accounts for more than half of total economic investment. (…)
Oil Rises After Saudi Call for Action on Prices Oil prices ticked higher after Saudi Arabia said it would work with other oil producers to stabilize prices, a comment interpreted by some to mean the world’s biggest oil producer could support a collective production cap.
The comment by Saudi Arabia’s energy minister, Kahlid al-Falih, boosted oil prices by more than 4% overnight to a three-week high. (…)
SENTIMENT WATCH
U.S. Stocks Hit New Highs, and Some Say That’s Just the Start The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all rose to new highs Thursday, an alignment that hasn’t occurred since 1999. For some traders, the factors driving shares up suggest markets could surge from these already-lofty levels.
On Thursday, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Compositeall rose to highs on the same day, an alignment that hasn’t occurred since Dec. 31, 1999. The records punctuate a march that defies stocks’ sharp downdraft at the year’s start. The ratio of stocks that trade on the New York Stock Exchange and the Nasdaq hitting 52-week highs versus 52-week lows recently surged to its highest level in years.
“The last time we’ve seen levels like this consistently was in 2013, which went on to be one of the best years for stocks,” said Frank Cappelleri, executive director of institutional equities at Instinet LLC. In 2013, the S&P 500 rose 30%. (…)
Just so you know, the S&P 500 Index was selling at 14.4x trailing EPS on Dec. 31, 2012 (19.1 currently). The Rule of 20 P/E was 16.2 (21.4). Earnings were also rising, with trailing EPS up 4.2% YoY in Dec. 2012 and up another 3.4% by Dec. 31 2013. And inflation eased from +2.2% in Oct. 2012 to a low of 1.6% by June 2013. Look at the chart. In 2013, the Rule of 20 valuation (black line) went from deep undervalued to fairly valued while the Rule of 20 Fair Index Value (yellow) was rising. Not quite the case now!
For some traders, the trends suggest stocks could enjoy a sudden surge. The bump could happen once investors return from summer vacations and begin taking some cash off the sidelines, they say. U.S. stock-trading volumes have been below the 2016 average in recent weeks. (…)
The rally in stocks in the late-1990s is often viewed as a case study for how stocks can shoot up even after reaching new highs. Between when the Nasdaq Composite hit a record high in November 1998 and the index’s peak in March 2000, the index more than doubled.
John Linehan, portfolio manager of the T. Rowe Price Equity Income Fund, says typical melt-ups come when exiting a recession, when a significant stock-market overhang has been eliminated or when investors are fundamentally rethinking how to value stocks.
In the case of the late-1990s, the U.S. market was shaking off the emerging-market crisis and the collapse of hedge-fund firm Long-Term Capital Management and its reverberations across financial markets, and focusing instead on a batch of new, disruptive technology companies. Furthermore, investors were increasingly ignoring long-held beliefs about measuring a company’s value based on its earnings in favor of metrics such as price-to-eyeballs, or how many page views a dot-com company received in a given month. (…)
What does point to a melt-up situation, some analysts say, is a shift in how investors are valuing stocks. Stock prices compared with their past 12-month earnings are at elevated levels compared with their 10-year averages. But many investors are justifying buying more stocks because valuations based on bond yields, which remain near unprecedented lows, suggest multiples could climb even higher and stocks still are relatively attractive. (…)
Yet,
Investor Demand for Bond Funds Relative to Stocks Highest on Record
Investors have poured $202 billion into global bond funds and withdrawn $47 billion from global equity funds this year, putting stocks on track for their first yearly outflow since 2008, according to the bank [J.P. Morgan]. (…)
Bank of America Merrill Lynch’s most recent monthly survey showed fund managers are holding their first underweight position in equities in four years. (…)
Around $12 trillion of global debt currently trades at a negative yield, according to Bank of America Merrill Lynch, including vast swaths of Japanese and European government bonds. But there are pockets of fixed income that still offer good returns, from emerging markets to U.S. corporate debt, some investors say.
Emerging-market dollar-denominated government debt has an average yield of 4.7%, according to Barclays. That compares with a dividend yield of 2.1% on the S&P 500. (…)
Investors in U.S. investment-grade credit have reaped a total return of 9.2%, according to Barclays, while U.S. high-yield bonds and emerging-market dollar-denominated debt has produced a return of more than 13%. (…)
Why Earnings Beats Are a Poor Measure of Corporate Health Whether profits beat or fall short of analyst forecasts has succumbed to Goodhart’s Law: When a measure becomes a target, it ceases to be a good measure.
(…) With most results now in, European second-quarter earnings have been 2.6% ahead of forecasts, calculates RBC. That is not because corporate Europe is performing well but because expectations were low: profits fell 4% year-over-year, dragged down by oil companies and banks. This isn’t a Europe-specific problem: second-quarter U.S. earnings fell 4.2% year over year. (…)
In the first half, European earnings-per-share forecasts for 2016 were revised down by over 12%, far more than in previous years, according to Barclays. (…)
Earnings beats really have to do with investors sentiment although there are occasional periods when the beat rates are much different than “normal”.
Alibaba Group Holding Ltd., its business maturing at home in China, is looking to wring more growth from India and Southeast Asia.
In India, the internet giant in recent months has snapped up executives with experience in the country’s fast-growing, highly competitive e-commerce sector, a sign it could be planning an online-shopping push there. In Southeast Asia, it paid $1 billion for a controlling stake in Singapore-based e-commerce startup Lazada Group in April, its biggest overseas acquisition to date.
“We acquired the majority control of Lazada in an effort to start to serve local consumers in Southeast Asia, and that’s something that’s going to be a very important potential market for us,” Alibaba Executive Vice Chairman Joe Tsai said on an earnings conference call Thursday after the company reported revenue growth of 59% in its fiscal first quarter. “It’s a market with over 500 million potential consumers.” (…)
- Brick-and-mortar retailers are making slow progress in their attempt to win consumers who increasingly are shopping online. Macy’s Inc. says it is closing 100 stores, shrinking its footprint by 14%, amid falling sales that have rendered some stores more valuable as real estate than as retail outlets, the WSJ’s Suzanne Kapner writes. Still, the company’s results were better than investors had feared, as were profits at Kohl’s Corp., another traditional retailer that has struggled to adapt to the rise of e-commerce. Department stores are reworking their supply chains and distribution networks to make it possible to cheaply deliver merchandise to online customers and shrink their networks of physical stores that are seeing declining traffic. Green Street Advisors, a real-estate research firm, says they have a long way to go: the firm estimates roughly 800 more department stores, or about a fifth of all mall anchor space, will need to close. (WSJ)
- Global container demand grew 2% year-over-year, but Maersk says the global container fleet grew 6% during the same period. Freight rates declined across all trades, by the most in North America and West Central Asia. Maersk says it still expects global demand for seaborne container transportation to grow just 1% to 3% this year. (WSJ)