S&P 500 Drifts 0.6% Higher, Commodities Gain

Bikram Pandey
15 Nov, 2011
New York City

U.S. stocks advanced after retail sales gained and wholesale prices fell. Wal-Mart, Home Depot, TJX and other retailers reported mixed but rising earnings. European sovereign bonds yields rose as fears of contagion spread to core euro zone members.

[R]4:00 PM New York – U.S. stocks advanced after retail sales gained and wholesale prices fell. Wal-Mart, Home Depot, TJX and other retailers reported mixed but rising earnings. European sovereign bonds yields rose as fears of contagion spread to core euro zone members.[/R]

U.S. stocks traded higher after investors focused on domestic economic data and earnings from retailers.

October retail sales rose 7.2% and wholesale prices fell at the steepest pace since February 2010. The positive economic data overshadowed the rising debt stress in the euro zone.

The U.S. retail sales in October 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%. Sales in the month increased 7.2% from a year ago.

Also wholesale prices declined at the fastest pace in October since February 2010 on the weak energy prices. In addition, regional economic survey from the New York region showed a slight improvement in manufacturing.

However, stock trading environment was cautious and stocks wavered after debt stress in the euro zone spread to the core nations in Europe.

Confidence crisis deepened as bond yields continue to rise for Italy and Spain.

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%. Spanish and Italian economies cannot sustain rates higher than 7%.

The yield on 10-year French bonds increased 20 basis points to 3.6% and Holland bond spread to German bunds rose to the highest since 2009. Belgian and Austrian bonds yields spreads also rose to a 10-year high.

Latest debt auction in the bond markets showed a sharp rise in yields. Belgium sold €2.725 billion of debt with 3-months bills yielding 1.575% and 12-month note yielding a 3-year high of 3.39%. French bond yield spread to German bund rose to a 20-year high at 1.89%.

The euro declined but held firm. The strength of the euro has confounded currency traders because economic outlook for the region is weak and the possible breakup of the currency zone is driving the sentiment in trading.

However, banks are repatriating money from the U.S. and Asian investments and the current account deficit in the euro zone is only 0.4%, substantially lower than 4% in the U.S.

So the stress is rising in the euro zone but the region is less dependent on the investors outside the bloc.

Investors worry that the regional leadership faces a difficult choice of either letting the European Central Bank act as a lender of last resort and lend directly to nations or permitting the struggling nations like Italy, Greece and Portugal to leave the currency bloc.

Separately, CDU, the party controlled by the German Chancellor Angela Merkel voted to allow nations to leave the euro zone and still stay in the European Union. The vote came late last night that may facilitate the shrinking of the euro zone.

The bond market remains on the edge and Spain completed the sale of debt at a steep cost. The Treasury sold €3.2 billion of short term securities that barely met the requirements of the auction.

The euro zone economic growth in the third quarter increased 0.2% from the second quarter and rose 1.4% from a year ago. The economic growth declined in the region substantially except the economy of Germany expanded at 0.5% and of France grew at 0.4%.

In Asia, the Nikkei index declined for the first time after rising for three days in a row. The continued turmoil in the euro zone, rising inflation in China and ongoing supply disruptions overwhelmed investor sentiment. Sumitomo Mitsui said it will buy back 1.6% of its stock. Mitsubishi UFJ said first half net soared on one-time gains.

Australian stocks eased on the worries that the euro zone volatility will persist for several years as Greece and Italy struggle to control spending and lower borrowing. Commonwealth Bank issued gloomy outlook. Uranium miners surged after Australia lifted exports bans to India.

Commodities, Bonds and Currencies

U.S. bonds yield on 10-year U.S. bond closed up at 2.06% and 30-year bond decreased to 3.10%.

The U.S. dollar rose 0.6% at $1.355 to one euro and closed lower against the Japanese yen to 77.05.

Immediate delivery futures of Texas crude oil increased $1.34 to $99.48 a barrel and futures of natural gas decreased 4 cents to $3.41 per mbtu and gasoline prices increased 5.94 cents to 259.47 cents a gallon.

In metals trading, copper increased 1.30 cents to $3.52 per pound, gold rose $5.10 to $1,783.50 per ounce and silver increased $0.51 to $34.52.