Disappointing Retail Sales Data May Lead To Initial Weakness On Wall Street

The major U.S. index futures are currently pointing to a lower open on Tuesday, with stocks likely to see initial weakness after turning mixed over the course of the previous session.

Early selling pressure may be generated in reaction to a report from the Commerce Department showing U.S. retail sales tumbled by much more than expected in the month of July.

The report said retail sales slumped by 1.1 percent in July after climbing by an upwardly revised 0.7 percent in June.

Economists had expected retail sales to dip by 0.3 percent compared to the 0.6 percent increase originally reported for the previous month.

Excluding a steep drop in sales by motor vehicles and parts dealers, retail sales fell by 0.4 percent in July after jumping by 1.6 percent in June. Ex-auto sales were expected to inch up by 0.1 percent.

A drop by shares of Home Depot (HD) may also weigh on the markets, with the home improvement retailer moving lower in pre-market trading after reporting second quarter earnings that beat estimates but weaker than expected same-store sales growth.

Retail giant Wal-Mart (WMT) is also seeing pre-market weakness despite reporting better than expected second quarter results and raising its full-year guidance.

After coming under pressure early in the session, the major U.S. stock indexes turned mixed over the course of the trading day on Monday. The Dow and the S&P 500 recovered to end the day at new record closing highs, while the Nasdaq regained ground but still closed in the red.

While the tech-heavy Nasdaq dipped 29.14 points or 0.2 percent to 14,793.76, the Dow climbed 110.02 points or 0.3 percent to 35,625.40 and the S&P 500 rose 11.71 points or 0.3 percent to 4,479.71.

The mixed performance on Wall Street came as traders remain optimistic about the outlook for the markets despite some signs of weakness in the global economy.

Concerns about the outlook for the global economy contributed to the initial weakness among stocks following the release of disappointing Chinese data.

Chinese industrial production and retail sales growth slowed in July, suggesting a slowdown in the economic recovery amid new COVID-19 outbreaks and supply chain disruptions.

Industrial production growth slowed to 6.4 percent in July from 8.3 percent in June, data from the National Bureau of Statistics revealed. Output was expected to gain 7.8 percent.

Retail sales grew at a slower pace of 8.5 percent on a yearly basis following a 12.1 percent spike in June. This was also weaker than the economists’ forecast of 11.5 percent.

Negative sentiment was also generated in reaction to a report from the New York Federal Reserve showing New York manufacturing activity saw significantly slower growth in the month of August.

The New York Fed said its general business conditions index plunged to 18.3 in August from 43.0 in July. While a positive reading still indicates growth, economists had expected the index to show a much more modest drop to 30.0.

Selling pressure was somewhat subdued, however, as traders looked ahead to closely watched reports on U.S. retail sales and industrial production as well the minutes of the latest Federal Reserve meeting.

Most of the major sectors ended the day showing only modest moves, although energy stocks saw significant weakness amid a steep drop by the price of crude oil. Crude for September delivery tumbled $1.15 to $67.29 a barrel.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plunged by 2.7 percent, the NYSE Arca Oil Index slumped by 2.3 percent and the NYSE Arca Natural Gas Index fell by 1.6 percent.

Steel, biotechnology and airline stocks also saw notable weakness on the day, while some strength emerged among pharmaceutical stocks.

Commodity, Currency Markets

Crude oil futures are slipping $0.35 to $66.96 a barrel after slumping $1.15 to $67.29 a barrel on Monday. Meanwhile, after climbing $11.60 to $1,789.80 an ounce in the previous session, gold futures are rising $2.50 to $1,792.30 an ounce.

On the currency front, the U.S. dollar is trading at 109.50 yen compared to the 109.24 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1741 compared to yesterday’s $1.1778.

Asia

Asian stocks fell broadly on Tuesday as worries about the impact of the fast-spreading Delta coronavirus variant weighed on sentiment.

Traders also awaited U.S. retail sales figures, remarks by Federal Reserve Chair Jerome Powell and the minutes from the Fed’s latest meeting for clues on the economic and interest rate outlook.

Chinese shares fell sharply as U.S. Securities and Exchange Commission Chair Gary Gensler issued his most direct warning yet about the risks of investing in Chinese companies. The benchmark Shanghai Composite Index plunged 70.37 points, or 2 percent, to finish at 3,446.98.

Hong Kong’s Hang Seng Index tumbled 435.59 points, or 1.7 percent, to 25,745.87. Internet stocks fell after China’s market regulator issued draft rules aimed at stopping unfair competition on the internet.

Japanese shares fell for the fourth straight session as concerns about the fast-spreading Delta variant of the coronavirus overshadowed strong financial results from heavyweights including Tokyo Electron.

The government is set to extend COVID-19 emergency control measures to more areas and into September to suppress the fifth wave of infections, public broadcaster NHK reported.

The Nikkei 225 Index slipped 98.72 points, or 0.4 percent, to finish at 27,424.47, while the broader Topix closed 0.5 percent lower at 1,915.63.

Tokyo Electron shares closed 0.7 percent lower after climbing around 3 percent earlier in the day as the company upwardly revised its earnings outlook. Shippers rallied, with Kawasaki Kisen shares climbing 3.5 percent.

Australian markets ended lower after minutes from the Reserve Bank of Australia’s August monetary policy meeting stated that the recent outbreaks of the Delta variant had introduced a high degree of uncertainty to the outlook for the second half of 2021.

With the country’s largest cities currently under lockdown, the benchmark S&P/ASX 200 Index fell 71.50 points, or 0.9 percent, to 7,511. The broader All Ordinaries index ended down 76.30 points, or 1 percent, at 7,773.70.

Appliance maker Breville plunged 9 percent, while property listings firm Domain Holdings surged 4.7 percent after unveiling their financial results.

BHP, Fortescue Metals Group and Rio Tinto lost 1-2 percent as copper prices declined following disappointing economic data from China.

Westpac declined 1.3 percent after the lender said it would consider returning capital to shareholders with its full-year results.

Seoul stocks closed lower for the eighth consecutive session as disappointing Chinese economic data raised concerns about a slowdown in the global economic recovery. The benchmark Kospi slid 28.20 points, or 0.9 percent, to 3,143.09.

Internet portal operator Naver and automaker Hyundai Motor both fell about 1.8 percent, while pharmaceutical giant Samsung Biologics rallied 3 percent.

Europe

European stocks are broadly lower on Tuesday as a spike in COVID-19 cases in Asia and elsewhere raised fears of a slowdown in global economic growth.

Worries about tighter regulation in China and the fast-evolving situation in Afghanistan also dented sentiment.

The French CAC 40 Index is down by 0.4 percent and the German DAX Index is down by 0.2 percent, although the U.K.’s FTSE 100 Index is up by 0.1 percent after data showed the country’s unemployment rate dropped to 4.7 percent in the three months to June.

Swiss Life Holding has moved to the downside. The Swiss financial-services firm reported a drop in its premiums in the first half.

Dutch tech firm Prosus, which has a stake in Chinese tech giant Tencent, lost about 2 percent after Chinese regulators issued a lengthy set of draft rules for the internet sector, banning unfair competition and restricting the use of user data.

The rules published by the State Administration for Market Regulation (SAMR) cover a wide range of areas from prohibitions on the way companies can use data to stamping out fake product reviews.

Commodity company Glencore has also fallen after it acquired a stake in U.K. battery maker Britishvolt.

Pearson shares have also moved lower. The publishing and education company has agreed with the U.S. Securities and Exchange Commission to pay $1 million to settle charges for misleading investors about cyber breach.

Meanwhile, Just Eat Takeaway.com has rallied. The online food ordering company said it has reached the peak of its absolute losses in the first half of 2021.

BHP Group shares have also soared. The miner posted its best annual profit in nearly a decade and confirmed the spin-off of its crude assets.

U.S. Economic Reports

With auto sales continuing to fall sharply, the Commerce Department released a report on Tuesday showing U.S. retail sales tumbled by much more than expected in the month of July.

The report said retail sales slumped by 1.1 percent in July after climbing by an upwardly revised 0.7 percent in June.

Economists had expected retail sales to dip by 0.3 percent compared to the 0.6 percent increase originally reported for the previous month.

Excluding the steep drop in sales by motor vehicles and parts dealers, retail sales fell by 0.4 percent in July after jumping by 1.6 percent in June. Ex-auto sales were expected to inch up by 0.1 percent.

At 9:15 am ET, the Federal Reserve is scheduled to release its report on industrial production in the month of July. Industrial production is expected to rise by 0.4 percent in July, matching the increase in June.

The Commerce Department is due to release its report on business inventories in the month of June at 10 am ET. Economists expect business inventories to climb by 0.8 percent.

Also at 10 am ET, the National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of August. The housing market index is expected to come in unchanged at 80.

Federal Reserve Chair Jerome Powell is due to host a town hall with educators and students at 1:30 pm ET. Powell will respond to questions asked by participants who will join the event virtually from across the country.

At 3:45 pm ET, Minneapolis Federal Reserve President Neel Kashkari is scheduled to participate in a virtual town hall before the Pacific Northwest Economic Regional Annual Summit.

Stocks In Focus

Shares of Roblox (RBLX) are seeing significant pre-market weakness after the video game platform operator reported second quarter bookings that missed Wall Street estimates.

Spirit Airlines (SAVE) may also move to the downside after revealing the cancellation of more than 2,800 flights between July 30 and August 9 cost the discount airline about $50 million.

On the other hand, shares of Organon & Co. (OGN) may see initial strength after Warren Buffett’s Berkshire Hathaway (BRK.B) reported a small stake in the pharmaceutical company.