Wednesday, May 15, 2019, 12:31 PM, EST
- Weaker Retail Sales numbers added to initial market selling.
- April U.S. Industrial production and Chinese economic data was also weaker than expected.
- Reports that Trump would delay Auto Tariffs helped bring back stocks to gains on the day.
Stocks rebounded yesterday, retracing about one third of Monday's losses, with virtually all of the action this week and last driven by trade headlines. For the beginning part of the session, weaker macro data and no new catalysts took stocks along the path of least resistance, down. The Dow fell about 150 points by mid-morning before rebounding, helped by headlines that Trump would delay the imposition of auto tariffs. Stocks are now higher as we write, with advancers leading decliners for most major indices.
Today we have some economic data to review, primarily the retail sales numbers which came in weaker than expected and took futures further into negative territory once the data was released at 8:30 a.m. this morning. April retail sales fell 0.2%, compare to an expected increase of the same amount. Ex-Autos, retail sales rose only 0.1% vs. 0.7% expected. Last month the consumer seemed to be making a comeback with a 1.7% gain that was the strongest since 2017. Soft auto and building materials sales hurt the headline figures. This is of course against the backdrop of China trade tensions and potential tariffs on a range of Chinese imports sold by retailers. Macy's actually had much stronger than expected earnings and comp store sales but the stock is only hovering around unchanged given the macro picture. Walmar t report
s tomorrow so might give an additional read on the health of the consumer and retailers.
Industrial Production, released later, showed an April decrease of 0.5% vs. the expectation of no gain. Capacity utilization was lower at 77.9% against 78.7% expected. The one bright spot was the non-market moving NY-area Empire Manufacturing Index, which was stronger than expected at 17.8 vs. 8.0 estimated.
Before you say that weak U.S. data plays into China's hand, there was also a series of releases from China showing that industrial output, retail sales and investment all slowed in April more than economists had forecast.
Though much of the data is from periods before the current trade spat, it feeds into the global deflation narrative and helped bond prices. It also puts a finer point on what both countries have to lose. The general consensus is that there is enough economic strength in the U.S. economy to withstand China tariffs even if it shaves some growth from expectations. But the market is jittery as this all plays out.
For now, at least the U.S. won't be opening additional fronts on the trade war, with reports that President Trump will delay the imposition of auto tariffs generally that would mostly target the EU and Japan. None of this is finalized however but it did help stocks add about 300 points from the morning lows.
Sector performance today started out mixed, with Staples and other safety sectors among the leaders with Industrials and Financials lagging. However, the morning rally put all sectors in the green, with tech-focused names leading and Financials taking up the rear. See the full table below.
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Brian's Technical Take
The positive Empire Manufacturing survey data is being overshadowed by the big miss in retail sales. The risk off reaction was swift with the us Treasury 2-year yield dipping to fresh 52-week lows, 2.137%, while the longer 10-year yield bottomed exactly along its 200-week sma, at 2.359%, just as it did in March. The latter long yield could potentially be forming a "double bottom", but for now I favor it breaking down to fresh lows. See our 2/26 MIDDAY UPDATE on the TLT ETF about the unleashing momentum and its historical precedent now driving yields lower.
Accordingly the fresh 52-week low in the 2-year yield is accompanied by new highs in the "probability for a 2019 rate cut" which today reached 80%, according to Bloomberg. The decline in rates and softer economic data is weighing on the banks with the KRX Index down as much as 2.7% in the early going.
As the S&P 500 was waffling around the lows of the session, down 15 - 20 points, newswires reported President Trump is expected to delay up to six months a decision on auto tariffs. This is welcome news to our allies in the EU and Japan who are also in bilateral trade talks with the U.S. The global market
s responded positively with rates and equities rallying off the lows, and the euro jumping back above 1.12. I was expecting a bigger rebound in the euro given the size short positioning already in place, and more so because of the extreme low trading ranges and volatility in the EURUSD pair.
The roller coaster price action reminds me of the standup comedian impersonating a golf announcer attempting play-by-play for an NHL playoff game. For now the volatility has actually been "good volatility" that participants can trade which is welcome news for the shorter term speculators and market makers. With Trump and Xi not expected to resume high level talks until the G20 in late June, equities may be in a holding pattern for the next month or so assuming no new tweets or other… (Don't assume). While the stakes are high, there appears to be an expectation that the Fed put is there if needed.
Circling back to the consumer, today's retails sales miss may not have been all that big a surprise to those following price. Despite low unemployment, +3% avg hourly earnings, and the recent above trend GDP figure, the price action in the retail industry has not been in lockstep with the broader averages which are coming off fresh all-time highs.
The S&P Retail ETF (ticker XRT) did rebound as much as 33% off its December lows, but it peaked more than ten weeks ago back on March 1stand even then remained more than 12% below its 52-week highs. On Monday alone the XRT dropped 3.8%, its largest decline in three years, while making a fresh YTD low and breaking a clearly defined key support level at $43.25. Yesterday and today it is "bear flagging" while Monday's "oversold" RSI, less than 30, attempts to normalize.
Until the XRT recaptures the $43.25 support, the risk from here is to the downside.
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Nasdaq's Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.