Shares are down slightly to weaker than expected retail sales

MARKET SNAPSHOT

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Shares were off to a modest weaker start Friday, and after a weaker-than-expected rise in July retail sales raised questions about the sustainability of the economy’s snapback from its pandemic-induced collapse in the spring.

Market participants this weekend were also eager for a round of virtual trade talks between the US and China against a backdrop of growing tensions between the two countries.

What do key indexes do?

The Dow Jones Industrial Average (DJIA) fell 61 points, or 0.2%, to around 27.829, while the S&P 500 (SPX) was off 3 points or less than 0.1%, at 3.370. The Nasdaq Composite (COMP) is down 23 points, or 0.2%, to trade at 11,018.

The Dow fell 80.12 points, or 0.3%, to close at 27,896.72 on Thursday, while the S&P 500 (SPX) lost 6.92 points, or 0.2%, to close at 3,373.43, after hitting an intraday peak at 3,387.24, temporarily trading above its Feb.19 closing record of 3,386.15. The Nasdaq Composite rose 30.27 points, or 0.3%, higher to close at 11,042.50. The major indices remain on course for winning gains.

What drives the market?

Retail sales rose 1.2% in July, the third straight monthly increase but weaker than the 2% increase forecast by economists surveyed by MarketWatch. Excluding cars and gasoline, sales increased 1.5%, beating expectations for a 1.1% increase. June sales were revised higher.

Overall, the report painted a positive picture of consumer activity, some analysts said. The figures left retail sales higher in July than they were in January or February before the pandemic hit, noted Marshall Gittler, head of investment research at BDSwiss Holding PLC.

But economists warned that the report indicated that consumer spending had lost some steam, underscoring fears of a further delay.

The data “underscores that healthcare consumers have turned cautious in the midst of a resurgence of viruses and lost stimulus support,” said Lydia Boussour, senior economist at Oxford Economics. She said the data also matched a stall in the firm’s own recovery tracker, confirming that “consumers are likely to keep a tight rein on their spending until a medical solution to the pandemic is found.”

Analysts said the ongoing deadlock between congressional Democrats and the White House over a coronavirus help package could limit the upside to the market. Negotiations to extend measures, including $ 600 per week in additional unemployment benefits, which have expired at the end of July since the end of last week were halted. President Donald Trump last week signed executive orders that would extend some measures in part, but which raise questions about their legality and logistics.

Meanwhile, virtual talks between US and Chinese officials this weekend are meant to check on China’s compliance with the phase one trade agreement reached last year. Unrest surrounds the talks given growing tensions over China’s actions in Hong Kong and other problems.

For investors “to re-increase their risk exposures, U.S. Democrats and Republicans may need to agree on a new fiscal package, and U.S. and Chinese officials may provide encouraging comments on their nations’ trade relations,” Charalambos said. Pissouros, senior market analyst at JFD Group, in a note.

The tone for global equities was not helped by a 1.1% decline in Chinese retail sales in July, against expectations for a flat reading.

In other data, second-quarter productivity rose by 7.3%, while unit labor costs jumped by 12.2%. Economists were looking for a 1.4% increase in productivity and an 8.7% increase in costs.

In July, industrial production saw a 3% increase, topping forecasts for an increase of 2.7%. Capacity usage last month went to 70.6% from 68.5% in June, against expectations for a reading of 70.5%.

A first reading of the University of Michigan’s August Consumer Sentiment Index came in at 72.8 compared to expectations for 72.

Which companies are in focus?

• Epic Games, the maker of “Fortnite” started a legal battle with Apple Inc. (AAPL) and Google parent Alphabet Inc. (GOOG) (GOOGL) accuses the tech giants of illegally using a monopoly on app and in-app purchases.
• Shares of Applied Materials Inc. (AMAT) rose 6.5% after chipmaker’s supplier reported results late Thursday and a outlook that surpassed Wall Street’s forecasts.
• DraftKings Inc. (DKNG) shares were down 8.1% after reporting a broader-than-expected loss, although earnings exceeded Wall Street expectations. The move was already under pressure after Bloomberg reported that the Internal Revenue Service requires fantasy sports companies to pay federal action taxes on their entry fees.

How do other markets trade?

Overnight in Asia, the CSI 300 index of China (XX: 000300) closed 1.5% higher, while the Hang Seng index of Hong Kong (HK: HSI) slipped 0.2% and the Japanese Nikkei 225 (JP: NIK) received 0.2%.

In Europe, the Stoxx 600 Europe Index (XX: SXXP) traded 1.2% lower and the FTSE 100 (UK: UKX) fell 1.7% on Friday, following a similar tumble in the previous session.

The yield on the 10-year Treasury note (BX: TMUBMUSD10Y) was down from 1 basis point to 0.703%. Bond prices move upside down to yields.

Gold prices (GC00) fell 0.7% to $ 1,957.50 an ounce, after a 1.1% gain on Thursday. Edge oil prices (CLU20) were off 5 cents, as 0.1% at $ 42.20 per barrel.

The greenback continued with its slide, with the ICE US Dollar Index, (DXY) a meter from the buck against half a dozen major rivals, down 0.2% to 93,121.

Video: Eurozone trade surplus drops as imports (Reuters)