Retail Sales Rise, Wholesale Prices Fall; Core Euro Zone Wobbles

Nichole Harper
15 Nov, 2011
New York City

U.S. stocks trade higher after October retail sales rise at 7.2% annual rate and wholesale prices fall at the steepest pace since February 2010. The positive economic data overshadowed the rising debt stress in the euro zone as yield increase in sovereign bonds spread to core euro zone.

[R]12:00 PM New York – U.S. stocks trade higher after October retail sales rise at 7.2% annual rate and wholesale prices fall at the steepest pace since February 2010. The positive economic data overshadowed the rising debt stress in the euro zone as yield increase in sovereign bonds spread to Holland, Belgium, Spain and Italy.[/R]

U.S. stocks traded higher after better than expected domestic retail sales and a sharp drop in wholesale prices. Investors weighed the rising tensions in the euro zone with the stronger domestic economic data.

Retail Sales Rise, Wholesale Prices Fall

Retail sales rose more than estimated as consumers showed willingness to purchase more goods.

The Commerce Department said October retail sales increased 0.5% from the previous month on higher sales of auto, electronics and building supplies. Sales excluding auto sales rose 0.6% and excluding autos and gasoline sales increased 0.7%.

Retail sales in the month increased 7.2% from a year ago.

U.S. consumers are spending more on automobiles in the year as pent up demand drive the sales and average vehicle in use is near 9.5 years of age.

However the additional gains in the retail sales may be hard to come because the recent gains have occurred despite new jobs addition to the economy and an increase in wages.

The Labor Department said U.S. wholesale price in October declined at the fastest monthly rate since February 2010.

The Producers Price Index declined 0.3% in October after rising at 0.8% in September. Wholesale gas price declined 2.4% and home heating oil prices fell 6%. However, food prices added 0.1% after rising at a faster pace for fourth previous months in a row.

In a regional survey published by the Federal Reserve Bank of New York showed a slight improvement in manufacturing sentiment. The New York region showed a fraction improvement in November the after manufacturers struggled in summer.

The Empire State index increased 0.61%, first time in positive territory since May and increased from -8.48 in October. New orders index fell to -2.07 from 0.16 and inventories index declined to -12.2 from 8.99.

The regional survey is one of the early factory orders indicators on the economic calendar and showed a healthy decline on the inflation front.

The prices paid index declined to 18.29 from 22.47 in October. The index in November was at the lowest since November 2009.

European Crisis of Confidence Grows

European markets sentiment took a turn for the worse as market jitters continue in the region.

The market sentiment was also on the defensive after the latest economic sentiment survey from the ZEW showed that the index declined 6.9 points in November to -55.2 points. The monthly decline was the ninth in a row and the lowest since financial crisis in October 2008.

A separate report from the statistics agency eurostat showed that the economy expanded at 0.2% in the European Union.

Most of the stress in the market is visible in the bond market and yields on the Italian and Spanish bonds rose for the second day in a row. And the debt stress widened to include more sovereign bonds.

The yield on 10-year Italian bonds increased 30 basis points to 7% and similar yields on Spanish bonds increased 20 basis points to 6.25%.

However, the fears in the bond market spread to France, Belgium and Holland. The yield on 10-year bonds increased 20 basis points to 3.6% and Holland bond spread to German bunds rose to the highest since 2009.

Stock Movers

Home Depot reported better than expected quarterly revenues and earnings and also lifted full year earnings outlook. The home repair goods retailer also lifted quarterly dividend 16%.

The Home Depot, Inc. ((HD)) rose 0.1% or 6 cents to $38.31 after the home improvement retailer reported third quarter sales rose 4.4% to $17.3 billion from $16.6 billion in the year-ago quarter. Comparable store sales increased 4.2%.

Net earnings in the quarter increased 12% to $934 million or 60 cents per diluted share compared to $834 million or 51 cents per share in the year ago.

Staples declined after it reported quarterly earnings that were below expectations but earnings were in line with analysts’ estimates.

Staples, Inc. ((SPLS)) slipped 5.2% or 81 cents to $14.56 after the office products service provider reported third quarter total sales edged up 0.5% to $6.57 billion from $6.54 billion in the year-ago quarter.

Net income in the quarter increased 13% to $326.4 million or 47 cents per diluted share compared to $288.7 million or 40 cents per share in the year ago period.

Wal-Mart Stores fell after the largest retailer reported weaker than expected quarterly results.

Wal-Mart Stores, Inc. ((WMT)) decreased 2.4% or $1.41 to $57.48 after the retail stores operator reported third quarter total revenues rose 8.1% to $110.2 billion from $101.9 billion in the year-ago quarter.

Wal-Mart U.S. comparable sales increased 1.3% and Sam''s Club comp sales without fuel rose 5.7% and international net sales increased 20% to $32.4 billion.

Net income in the quarter fell 2.9% to $3.33 billion or 96 cents per diluted share compared to $3.44 billion or 95 cents per share in the year ago.