A Closer Look at Disappointing Retail Sales

“Retail sales in the U.S. unexpectedly fell in March by the most in nine months as employment slowed, showing households ended the first quarter on softer footing.

The 0.4 percent decrease, the biggest since June, followed a 1 percent gain in February, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg called for an unchanged reading in March. Department stores and electronics dealers were among the weakest showings.

The figures may prompt economists, who are projecting consumer spending climbed in the first quarter at the fastest pace in two years, to reduce growth estimates. A pickup in hiring and bigger increases in wages will be needed to ensure any slowdown proves temporary as federal budget cuts restrain the world’s largest economy.

“Consumers are still on somewhat shaky ground,” Scott Anderson, chief economist at Bank of the West in San Francisco, said before the report. “We need more evidence that the spurt of activity seen early in the year is sustainable.”

Wholesale prices fell more than forecast in March as the cost of energy slumped by the most in three years, data from the Labor Department also showed today. The 0.6 percent drop in theproducer price index was the biggest since May and followed a 0.7 percent gain in the prior month….”

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“The latest rail data from the AAR showed another weak year over year reading at just 0.2%.  This brings the 12 week moving average down to 5.25% from a recent high of 6.75% and is likely to slow substantially from here.  Looking at the recent data and current trend it would not be surprising to see ~3% readings in this data by the time May rolls around.

For now, the data is still consistent with a growing economy, but it will be interesting to see how this data pans out as the summer rolls around.  We’ve now had 4 consecutive weeks of negative average readings so hopefully this is not a developing trend.

The AAR has more details: …”

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Retail – ex auto -0.4%

CPI core is 1.7%

Futures react negatively nearly doubly downside off the data….

“The International Monetary Fund lowered its forecast for U.S. growth as automatic budget cuts take hold, according to a draft of the Washington-based lender’s World Economic Outlook.

U.S. gross domestic product will expand 1.7 percent this year compared with a previously forecast 2 percent advance, according to the draft report obtained by Bloomberg News. The draft, which was presented to the IMF board last week, may be subject to revisions before its scheduled April 16 release.

The U.S.’s fiscal tightening that took effect last month will restrain consumption temporarily, the report said. The global economy will expand 3.4 percent this year, compared with 3.5 percent forecast in January, according to projections in the report….”

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“A new U.S. military intelligence assessment says for the first time that North Korea may have developed a nuclear device small enough to mount on a ballistic missile, but said such a weapon’s “reliability would be low.”

In an assessment by the Defense Intelligence Agency, a branch of the Pentagon, analysts appeared to upgrade U.S. estimates of North Korea’s nuclear-weapons abilities, according to a portion of the report disclosed by a lawmaker at a House hearing on Thursday.

There was disagreement in Washington over the extent of North Korea’s capabilities, with Obama administration officials and the Pentagon press office saying there isn’t evidence that the country could use such a weapon.

Tensions are running high in Washington over how best to address the North Korean threat without triggering precipitous reactions from U.S. allies in North Asia. The White House has made an effort to rein in tensions and more tightly control the message, but as the varying interpretations of Pyongyang’s abilities show, that can be difficult on politically charged issues.

The Defense Intelligence Agency, or DIA, rated its confidence in its finding as “moderate.” Experts said that, if proven accurate, the assessment would mark a dangerous advance in the North Korean program.

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“In further evidence of growing exuberance over prospects for Japanese stocks, U.S. investment bank Goldman Sachs late Thursday upgraded its 12-month target for both Japanese benchmarks – the Nikkei and Topix – on expectations of bumper earnings growth.

It increased its target for Nikkei to 16,000 from 15,000 and for the Topix to 1,350 from 1,250 earlier, which marks a near 20 percent upside from current levels.

“Last week’s announcement by [Bank of Japan] Governor Haruhiko Kuroda was the most credible attack on deflation that Japan has seen in a very long time, there’s prospect for Japan to exit this liquidity trap and get its domestic economy back on its feet,” Kathy Mitsui, chief Japan strategist at Goldman Sachs told CNBC on Friday.

For the Topix, Mitsui forecasts earnings per share growth of 54 percent in the fiscal year ending March 31, 2014 and 23 percent in following year, driven by expectations of stronger gross domestic product (GDP) growth in the world’s third largest economy and continued weakness in the yen. The bank expects the yen to weaken to 105 against the U.S. dollar by the end of the year, and to 110 in 2014.

Gains in the Topix – which has risen almost 60 percent since mid-November when Prime Minister Shinzo Abe unveiled in his bold election campaign to boost the economy with expansionary fiscal and monetary policies – have largely be driven by foreign investor inflows. Japan’s equity markets have seen $60 billion in foreign inflows over this period, which has also pushed the Nikkei up over 55 percent.

And, while this will continue to be a major force for the country’s stocks, Mitsui said, there is also potential for domestic retail investors to increase their participation in the market.

(Read More: Uniqlo Shrugs Off Row, Picks China for Biggest Store)

“Retail investors are gradually beginning to sniff around looking at higher yielding names. There is going to be a time when some domestic money, particularly retail and mutual fund money begins to trickle in again,” she said.

Betting on Consumption…”

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“(Reuters) – At least three Wall Street analysts this week have written reports about the possibility of the biggest banks breaking themselves up to boost profitability, signaling that investors may be more willing to embrace an idea that is still toxic to some lawmakers in Washington.

New regulations in areas like capital requirements are imposing higher costs on the biggestinvestment banks, raising doubts about their future profitability. These questions make the biggest global investment banks “un-investable,” wrote analyst Kian Abouhossein, who himself works atJPMorgan, one of the biggest global investment banks.

Breaking up large “universal banks,” could unlock value for shareholders, Wells Fargo analystMatthew Burnell wrote in a report on Wednesday. These “financial supermarkets” typically house investment banking, consumer banking and wealth management operations under one roof.

If these banks broke up into smaller companies, the value of the parts would likely be greater than the current whole, Burnell wrote. He estimated that universal banks currently trade at 25 to 30 percent below publicly traded financial firms that focus on just one business.

CLSA analyst Mike Mayo, a long-time critic of big banks, wrote on Tuesday: “Almost every investor that we speak with indicates that a breakup would be bullish for the stocks.” …”

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“SAN FRANCISCO, Apr 12, 2013 (BUSINESS WIRE) — Wells Fargo & Company WFC -1.01% :

— Continued strong financial results: — Record Wells Fargo net income of $5.2 billion, up 22 percent from first quarter 2012

— Record diluted earnings per share of $0.92, up 23 percent

— Revenue of $21.3 billion, compared with $21.6 billion

— Noninterest expense of $12.4 billion, down $593 million — 58.3 percent efficiency ratio, improved from 60.1 percent

— Pre-tax pre-provision profit (PTPP)(1) of $8.9 billion, up 2 percent

— Return on average assets (ROA) of 1.49 percent, up 18 basis points

— Return on equity (ROE) of 13.59 percent, up 145 basis points

— Continued loan and deposit growth: — Total average loans of $798.1 billion, up $29.5 billion from first quarter 2012 — Quarter-end loans of $800.0 billion, up $33.4 billion

— Quarter-end core loans(2) of $709.1 billion, up $50.8 billion

— Total average core deposits of $925.9 billion, up $55.4 billion from first quarter 2012 — Quarter-end core deposits of $939.9 billion, up $51.2 billion…”

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“JPMorgan Chase & Co. (JPM) said first- quarter profit rose 33 percent to an all-time high, beating analysts’ estimates as improving consumer credit quality allowed the bank to cut loan-loss reserves by $1.2 billion.

First-quarter net income climbed to $6.53 billion, or $1.59 a share, from $4.92 billion, or $1.19, in the same period a year earlier, the New York-based company said today in a statement. Twenty-eight analysts surveyed by Bloomberg estimated earnings per share of $1.39 adjusted for a one-time accounting item.

Earnings were buoyed by a drop in late payments as net charge-offs in the consumer bank fell 29 percent to $1.7 billion, allowing the firm to release loan-loss reserves into earnings. While mortgage volume jumped 37 percent, mortgage- banking net income dropped 31 percent to $673 million as record- lowinterest rates squeezed profits. Margins on lending declined to 2.37 percent from 2.61 percent a year earlier.

“We are seeing positive signs that the economy is healthy and getting stronger,” Chief Executive Officer Jamie Dimon, 57, said in the statement. “Housing prices continued to improve and new home purchases are also starting to come back.”

About $5.68 billion of JPMorgan’s record $21.3 billion in 2012 profit came from reserve releases as fewer consumers defaulted on their payments.

Bigger Release…”

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“West Texas Intermediate crude fell for a second day, erasing its advance this week. The U.S. benchmark’s discount to London-traded Brent neared its narrowest in more than 14 months.

Futures dropped as much 1.4 percent in New York as Cyprus said it will ask the euro area for further financial aid, while investors awaited a report forecast to show U.S. retail sales stagnated in March. Oil prices may rebound next week, according to a Bloomberg News survey of analysts. WTI’s discount to Brent shrank to as little as $10.40 a barrel today, the smallest gap on an intraday basis since Jan. 26, 2012.

“The supply balance is still a bit weak,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, who forecasts that WTI will average $96 a barrel this quarter. “We are close to the bottom, as we expect the market to tighten, but the bottoming-out process may take some time.”

WTI for May delivery declined as much as $1.26 to $92.25 a barrel in electronic trading on theNew York Mercantile Exchange and was at $92.34 at 12:12 p.m. London time. The volume of all futures traded was 73 percent greater than the 100-day average. The contract has slipped 2.4 percent over the last two days, its biggest decline since April 4. Prices have fallen 0.4 percent this week, paring their gain this year to 0.5 percent.

Brent for May settlement, which expires on April 15, fell $1.29 to $102.92 a barrel on the London-based ICE Futures Europe exchange. The more actively traded June future slid $1.41 to $102.97. The European benchmark grade was at a premium of $10.58 to WTI futures.

Retail Sales…”

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“Gold fell to the lowest in a week and headed for the biggest weekly drop since February on speculation a strengthening dollar and U.S. economy will curb demand for a protection of wealth. Precious metals declined.

The dollar rose as much as 0.5 percent versus the euro today and U.S. equities reached a record yesterday as data showed U.S. jobless claims fell more than estimated last week. Minutes of the Federal Reserve’s March meeting released April 10 showed several members were in favor of pulling back on its $85 billion monthly debt-buying program this year. Gold fell below a “crucial” support level of $1,550 an ounce today, said Andrey Kryuchenkov, an analyst at VTB Capital in London

“It’s the dollar rebound,” Kryuchenkov said today by phone. “There is a lack of conviction in gold and with equities performing so well, why bother?”

Gold for immediate delivery fell 0.9 percent to $1,547.45 an ounce by 10:55 a.m. in London. Prices reached $1,545.16 and are down 2.1 percent this week. Bullion for June delivery was 1.2 percent lower at $1,546 on the Comex in New York. Futures trading volume was 8 percent above the average in the past 100 days for this time of day, data compiled by Bloomberg show.

Gold hasn’t closed below $1,550 in London since May. It’s down 7.6 percent this year on mounting optimism that the U.S. will help lead a global economic recovery. Holdings in the SPDR Gold Trust, the biggest gold-backed exchange-traded product, fell to 1,181.4 metric tons yesterday, the least since May 2010.

Cyprus Rescue…”

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“The euro fell against the dollar, weakening 0.2 percent to $1.3067 at 8:30 a.m. London time.

The 17-nation currency dropped 0.6 percent to 129.81 yen.”

“Volkswagen AG (VOW), Europe’s biggest automaker, said global sales growth slowed in March and that headwinds in its home region are intensifying.

VW eked out a 0.2 percent rise in deliveries in March to 864,400 vehicles as robust demand in China and North America more than offset shrinking sales across Europe, the Wolfsburg, Germany-based carmaker said in a statement today. In the first two months of the year, VW vehicle deliveries rose 8.3 percent to 1.4 million.

“The data for March clearly show that the markets are becoming even more difficult,” Christian Klingler, VW’s sales chief, said in the statement.

Auto executives are forecasting a sixth straight annual decline for the industry in Europe this year as the region’s waning economy stifles demand for new cars….”

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“Chinese President Xi Jinping’s campaign to rein in lavish spending by officials and state-owned companies is proving so effective that it risks helping end the nation’s economic rebound after one quarter.

Bank of America Corp. is among 12 of 41 respondents in a Bloomberg News survey who estimate first-quarter expansion was at or below the previous period’s 7.9 percent pace. The world’s second-largest economy probably grew 8 percent in the January- March period from a year earlier, according to the median forecast ahead of data due April 15 in Beijing, down from an 8.2 percent projection in February.

Xi’s efforts are restraining consumer spending and making it tougher for the new government to boost domestic demand asfactory output slows. Large-restaurant and catering sales fell for the first time in more than three decades in the first two months of the year, while demand and prices for luxury items such as Moutai liquor and Longjing tea have slumped.

“The anti-corruption action by Xi is creating unprecedented phenomena, including an absolute fall in high-end restaurant sales,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, who previously worked for the European Central Bank. “It’s certainly a big factor dragging down short-term growth.”

October-December growth in gross domestic product represented the first acceleration in two years, up from the third quarter’s 7.4 percent rate. For the full year, expansion was 7.8 percent, the slowest since 1999.

March Figures….”

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“Tokyo Electric Power Co. (9501)’s discovery of leaks in water storage pits at the wrecked Fukushima atomic station raises the risk the utility will be forced to dump radioactive water in the Pacific Ocean.

Leaks were found in three of seven pits in the past week, reducing the options for moving contaminated water from basements of reactor buildings. Water in the basements is from the months after the earthquake and tsunami disabled the plant two years ago, when disaster teams used hose pipes and pumps to try and cool the reactors….”

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“Infosys Ltd. (INFO), India’s second- largest software services exporter, plunged the most in 10 years in Mumbai trading after forecasting annual sales growth as slow as half the pace analysts estimated.

Infosys shares plummeted 21 percent to 2,296.65 rupees at the close, the biggest decline since April 2003. Bigger competitor Tata Consultancy Services Ltd. (TCS), which will report earnings on April 17, fell 1.6 percent and Wipro Ltd. (WPRO) dropped 4.8 percent. Infosys was the biggest loser on the S&P BSE Sensex, dragging the benchmark 1.6 percent lower.

An uneven global recovery poses a challenge for the information-technology services industry, Chief Executive Officer S.D. Shibulal said after the European Central Bank last month cut growth and inflation forecasts. Infosys said it charged customers less last quarter, underscoring concerns about the ability of service providers to raise prices.

“It is a real disaster for Infosys, primarily because of their low guidance along with their fourth-quarter revenue,” said Amar Mourya, a Mumbai-based analyst at India Nivesh Ltd. “Their confidence seems to be shaken with such a broad forecast, and visibility looks poor.”

The company, based in Bangalore, expects revenue to increase 6 percent to 10 percent in the year ending March 2014, it said. Analysts estimated sales at 454.7 billion rupees ($8.3 billion), up 12.7 percent, based on the average of 66 estimates compiled by Bloomberg. It didn’t provide an earnings per share forecast as the “unknowns are substantial,” Shibulal said in a conference call with analysts.

Spending Budgets…”

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