Lackluster retail sales data for last month has contributed to a second straight day of dropping stock prices on Wall Street.
By Peter Martin
Friday, June 13, 2014
A 0.3% rise in retail sales for May was beneath analyst forecasts for a 0.6% increase, though the setback was counterbalanced to some degree by an upward-amendment in April’s data (revised to +0.5% from the +0.1% that was previously reported). Much of May’s gains can be laid at the feet of auto sales, though, which is one of the more volatile components of this report. Stripping out autos, sales were up just 0.1% in May.
Jobless claims data this morning was also slightly disappointing. Initial jobless claims increased 4,000 to 317,000 last week, taking the four-week moving average up from 310,500 to 315,250. This level still compares favourably to how things were looking a month ago, so this report in itself does nothing to change the overall complexion for the labor market, which remains one of improvement.
As well as these underwhelming economic indicators, the stock market was also hindered by news of two Iraqi cities falling to Sunni Islamist insurgents, with fears that the insurgents could push on to Baghdad. The insurgents also hold parts of eastern Syria. President Obama said that immediate, short-term military action was needed, and ‘I don't rule out anything because we do have a stake in making sure these jihadists are not getting a permanent foothold in Iraq, or Syria for that matter.’
By mid-afternoon in New York, the Dow Jones Industrial Average was down 0.67% or 112 points at 16,731, with nearly all its components in the red, while the S&P 500 slid the same percentage to 1931.1.
The conflict in Iraq has also had a large effect on the price of oil. US light crude oil futures rose 1.88% to $106.33 per barrel, after earlier hitting $106.53, the highest level in eight months. Iraq has the second-largest output of crude in OPEC and the fifth-largest proven oil reserves in the world. The country had been in the process of increasing its oil production, reaching its highest level in 35 years earlier this year, but this is now threatened with instability. Iraq’s most important oil fields are in the south of the country, closer to the Kuwaiti border than Baghdad, so are not in imminent danger yet. Whether the militants have the strength to reach that far south is debatable, but the oil markets are clearly pricing in some risk.
Other economic data released today included import and export prices, which showed few signs of any inflationary pressures. Import prices advanced just 0.1% last month, the same percentage rise recorded for export prices. Excluding petroleum prices, import prices look more deflationary than inflationary. We will have more information available in this area tomorrow with the release of May’s Producer Price Index for final demand (expected to rise 0.1%) and May’s CPI report will follow next Tuesday. Judging by today’s report, there is no pressure from inflation to hurry the Fed towards tighter monetary policy though.
That, along with the softness in the retail sales data, has pushed the dollar lower today for a second successive day. EUR/USD rose 0.26% to 1.3567, while USD/JPY fell 0.4% to 101.66.
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