Major U.S. stocks indexes closed lower Monday following sharp declines in the preceding session. The market, already reeling from General Electric's (GE) weaker than expected earnings report Friday, slipped further when Wachovia (WB) unexpectedly reported a quarterly loss and cut its dividend, while also confirming a $7 billion recapitalization plan.
The news sent the stock down 8.1% Monday, and sparked a 4.7% decline in the S&P Diversified Banks index.
Also, Deutsche Bank (DB) is aiming to sell up to $20 billion of debt, according to a Wall Street Journal report.
Stocks had gained some traction earlier in the session after a report that U.S. retail sales rose 0.2% in March, while the ex-auto component was up 0.1% -- stronger than expected. February's 0.6% decline was revised up to -0.4%, and the 0.2% decline in the ex-auto figure was revised to a 0.1% drop. Headline sales have slowed to a 0.1% year-over-year pace from 6.8% in February, while ex-auto sales are up 2.1% year-over-year vs. 8.8% February.
Bonds finished lower in price. The dollar index was lower following the weekend meeting of the Group of Seven industrialized nations meeting that worried about a weak greenback and food shortages. Gold and oil futures were higher as the dollar fell.
On Monday, the Dow Jones industrial average finished lower by 23.36 points, or 0.19%, at 12,302.06. The S&P 500 index fell 4.51 points, or 0.34%, to end at 1,328.32. The Nasdaq composite index shed 14.42 points, or 0.63%, to 2,275.82.
Looking ahead to Tuesday, Wall Street will be watching the producer price index for March for signs that inflation is piocking up steam. Economists surveyed by Action Economics expecte the overall PPI to rise 0.6%, while the core index, which excludes food and energy, is seen increasing 0.2%.
Tuesday's release of the headline April Empire State index is expected at -15.0, according to Action Economics, from the weaker-than-expected reading of -22.2 in March. The March headline was the lowest in the survey's history (which began in July, 2001).
On Monday, Wachovia posted a first-quarter loss of 20 cents per share, vs. earnings per share of $1.20 one year earlier, on a 4.5% revenue drop. The company notes higher credit costs and the continued disruption in the capital markets. Wachovia slashed its dividend 41%. In a bid to boost its capital, the company commences concurrent offerings of common stock and preferred stock for an aggregate of $7 billion.
A brokerage downgrade of GE, which reported disappointing earnings Friday, added to equity market woes.
Three days of top-level meetings among the world's senior economic officials ended with a joint international effort to quell the turmoil now gripping global financial markets, according to a Wall Street Journal report.
In other economic news, U.S. business inventories rose 0.6% in February, from a revised 0.9% increase in January (0.8% previously, though December's 0.7% gain was revised down to 0.6%). Retail inventories edged up 0.2%; manufacturers' inventories were up 0.5%, while wholesalers' were up 1.1%. Sales fell 1.1% from a revised 1.3% surge in January (1.5% previously). The inventory-to-sales ratio rose to 1.28 from 1.26 in January (revised from 1.25).
“The inventory bounce was a little stronger than we expected, and add to our belief that Q1 GDP posted a positive growth rate and suggesting the economy did not fall into recession last quarter,” says Action Economics.
May WTI crude oil futures last traded up $1.60 per barrel at $111.74, after ranging between $110.30 and $111.99 in N.Y. dealings, reports Action Economics. Monday afternoon as Royal Dutch Shell workers repaired the 1.1 million barrel-a-day Capline system in Tennessee that sprang a leak Friday.
June gold futures were up $1.90 to $928.90 per ounce in COMEX trading. The dollar index was down 0.52 to 71.52 on nervous selling before more earnings reports are released.
Among stocks in the news Monday, Circuit City Stores (CC) says Blockbuster (BB) has offered to acquire the electronics retailer for at least $6 per share in cash, subject to due diligence.
Petrobras (PBR) and Repsol YPF (REP) shares surged Monday following reports of a large offshore oil discovery in Brazil. According to Reuters, this offshore find by Petrobras, in partnership with BG Group and Repsol YPF may be the world's biggest discovery in 30 years, the head of the National Petroleum Agency said on Monday.
Scotts Miracle-Gro (SMG) expects adjusted EPS in the second quarter of $1.14-$1.18 due to a late launch to the lawn and garden season. Says its outlook for the full-year is unchanged, as consumer activity over the first two weeks of April has been strong.
Eaton Corp. (ETN) reported first quarter operating EPS of $1.70, vs. $1.62 one year earlier, on a 12% sales rise. The company sees second quarter operating EPS of $1.90-$2.00; and raised its full-year 2008 operating EPS forecast to $7.80-$8.30.
Delta Air Lines (DAL) and Northwest Airlines (NWA) are readying a merger announcement, perhaps as early as Tuesday, according to a Wall Street Journal report.
AirTran Holdings (AAI) updated financial information in response to market volatility, saying, among other things, that it is in full compliance with terms of its credit card agreements, has no holdbacks with any of its major credit card processors; its liquidity position has strengthened from yearend.
European stocks headed lower Monday. In London, the FTSE 100 index fell 1.08% to 5,831.60. In Paris, the CAC 40 index declined 0.66% to 4,766.49. Germany’s DAX index slumped 0.74% to 6,554.49.
Asian markets tumbled Monday after Friday’s Wall Street sell-off. Japan’s Nikkei 225 index dropped 3.05% to 12,917.51. In Hong Kong, the Hang Seng index fell 3.47% to 23,811.20.
Treasuries fell as an unexpected rise in March retail sales eased concerns of a deep economic recession. The 10-year note fell 06/32 in price to 100-01/32 for a yield of 3.49%. The 30-year bond sank 17/32 to 100-23/32 for a yield of 4.33%. Equities stabilized from late morning to early afternoon, contributing to a bearish backdrop for bonds, but weakened in late trading.