U.S. stocks pared early gains to finish near the flatline, though a rally in crude oil prices powered gains for the energy sector. Treasuries and the U.S. dollar were lower and gold was nearly unchanged, while domestic economic news was limited to a report that showed wholesale inventories declined more than expected. In light equity news, Gap reported disappointing March sales and a 1Q warning.
The Dow Jones Industrial Average (DJIA) advanced 35 points (0.2%) to 17,577, the S&P 500 Index gained 5 points (0.2%) to 2,047, and the Nasdaq Composite ticked 2 points higher to 4,851. In moderate volume, 825 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil surged $2.46 to $39.72 per barrel, wholesale gasoline was $0.08 higher at $1.46 per gallon and the Bloomberg gold spot price inched $0.46 lower to $1,239.99 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 94.22. Markets were lower for the week, as the DJIA and the S&P 500 Index decreased 1.2%, while the Nasdaq Composite declined 1.3%.
Gap Inc. (NYSE:GPS $24) reported that its March same-store sales fell 6.0% year-over-year (y/y), compared to the FactSet estimate of a 5.0% drop. Sales at its flagship stores, along with Banana Republic and Old Navy, all declined solidly as "March proved challenging." GPS also warned that it is entering April with more inventory than planned, which it expects to pressure its gross margin for 1Q. Shares traded sharply lower.
Wholesale inventories decline more than expected
Wholesale inventories (chart) decreased 0.5% month-over-month (m/m) in February, compared to the Bloomberg forecast of a 0.2% decline. January's 0.3% rise was downwardly revised to a 0.2% decrease. Sales declined 0.2% m/m, compared to the 0.2% increase that was expected, and the inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—dipped to 1.36 from January's upwardly revised 1.37 months level.
Treasuries were lower, with the yield on the 2-year note rising 1 basis point (bp) to 0.70%, the yield on the 10-year note gaining 3 bps to 1.72%, and the 30-year bond rate advancing 4 bps to 2.55%. Fed monetary policy remains in focus, following this week's release of the March meeting minutes that showed policymakers are divided on the timing of the next rate hike, while Chairwoman Yellen highlighted the "healing" labor market in a speech after the market's closed yesterday with three of her predecessors. But she also noted that the Fed carefully considers the impact of its actions on the rest of the world.
Europe rebounds, Asia mixed as yen rally and looming China data in focus
European equities traded higher, led by a rebound in the energy sector as oil prices jumped, and a recovery in the recently beaten down banking sector. Also, the global markets likely got some relief from a retreat for the Japanese yen from its recent surge, though world monetary policies remain in focus. The euro gained ground versus the U.S. dollar and bond yields in the region were mixed. In economic news, German exports rose more than expected for February and March French business sentiment unexpectedly improved, while manufacturing and industrial production reports out of the U.K. and France were disappointing.
Stocks in Asia finished mixed to close out the week, with Japan's Nikkei 225 Index showing some late-day strength to move higher and pare its second-straight weekly loss as the yen retreated from its recent surge to help ease sentiment and boost exporters. The yen has surged as of late, likely due to the diverging global monetary policy front and recent risk aversion in the world markets, to weigh on estimates for profits of Japanese export-related companies and exacerbate the nation's economic outlook. The pullback in the yen came as comments today from the country's Finance Minister Aso and talk from Bank of Japan Governor Kuroda earlier this week boosted expectations that there could be some intervention in the currency markets.
Chinese stocks finished mixed ahead of next week's flood of economic data, headlined by the release of its 1Q GDP report, projected to show growth slowed slightly to 6.7% y/y, from 6.8% in 4Q.
Rounding out the day, South Korean equities dipped, along with Indian securities ahead of the nation's start of earnings season next week, while Australian stocks dropped as weakness in financials more than offset a modest rise in oil & gas issues.
Down week as volatility remains
U.S. stocks finished lower on the week, with financials pressuring the global markets, while sentiment may have also been hamstrung by the persistent rally in the Japanese yen, which neared an 18-month high versus the U.S. dollar. Focus remained on the divergent global monetary policy front with world banking stocks being hampered by festering concerns about the impact of a plethora of negative interest rate policies and as the Fed March meeting minutes showed policymakers remained dividend on the path of future rate hikes. Although data was on the light side, the ISM non-Manufacturing Index showed growth in the key U.S. services sector accelerated for the first time in five months, complemented by an upbeat read on Chinese services sector output. However, a solid gain for energy issues helped limit losses as crude oil prices rallied on an unexpected drop in domestic oil inventories, some weakness in the U.S. dollar, and resurfaced optimism of a potential output freeze. Finally, the recently beaten down health care sector rebounded to also help keep losses in check, bolstered by the terminated $160 billion merger between Dow member Pfizer Inc. (NYSE:PFE $33) and Allergan (NYSE:AGN_pa) PLC. (AGN $238) in the wake of the U.S. Treasury Department's new corporate inversion tax rules announced on Monday.
Start of earnings season set to join heavy economic calendar
Next week's U.S. economic calendar will bring some key reads on the all-important consumer in the form of March retail sales and the preliminary April University of Michigan Consumer Sentiment Index. Also, the inflation picture will likely continue to garner heightened attention, courtesy of the releases of the March Consumer Price Index (CPI) and the Producer Price Index (PPI). However, some of the attention may be diverted to the start of 1Q earnings season, which will unofficially kick off with Monday's results from Alcoa Inc.(NYSE:AA $10) after the closing bell.
Other notable U.S. reports on next week's economic calendar include: the NFIB Small Business Optimism Index, the Fed's Beige Book, and industrial production and capacity utilization.
Key international releases scheduled for next week include: Australia—consumer confidence and employment change. China—new yuan loans, aggregate financing, CPI, PPI, trade balance, industrial production, retail sales, and 1Q GDP. India—CPI and industrial production. Japan—machine orders and industrial production. Eurozone—industrial production, CPI and trade balance. U.K.—CPI and the Bank of England's monetary policy decision.
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