Wall St little changed as retail stocks gain; dollar extends rally

Oil drops as demand shows signs of weakening

NEW YORK, May 16, (Agencies): Italy’s borrowing costs jumped on Wednesday and the country’s stocks slid after reports that the two parties seeking to form Italy’s next government might seek debt forgiveness, while the US dollar rallied further to a five-month high.

Investors were digesting Tuesday’s surge in US bond yields on the heels of a retail sales report that fueled the dollar and hurt stocks.

The benchmark 10-year yield held well above 3 percent after bursting through key technical levels on Tuesday.

Wall Street’s main indexes were little changed after sliding on Tuesday.

The Dow Jones Industrial Average fell 2.28 points, or 0.01 percent, to 24,704.13, the S&P 500 gained 4.37 points, or 0.16 percent, to 2,715.82 and the Nasdaq Composite added 24.88 points, or 0.34 percent, to 7,376.51.

Shares of US retailers rose after results from department store chain Macy’s.

In Italy, investors seized on a report that the anti-establishment 5-Star Movement and the far-right League party plan to ask the European Central Bank to forgive 250 billion euros ($296 billion) of Italian debt, according to a draft the parties are working on.

Italian stocks tumbled 2.3 percent while Italy’s 10-year bond yield jumped to 2.096 percent.

Other major European stock markets were higher, and the pan-European FTSEurofirst 300 index rose 0.22 percent.

MSCI’s gauge of stocks across the globe gained 0.03 percent.

The dollar index, which measures the greenback against a basket of six other currencies, rose 0.32 percent to 93.515 after rising to 93.632 during the session, its highest since mid December. The euro was down 0.48 percent to $1.178.

US crude fell 0.5 percent to $70.95 per barrel and Brent was last at $78.05, down 0.48 percent on the day.

US

Wall Street rose on Wednesday, with the small cap Russell 2000 index hitting a record, as Macy’s strong results lit up the retail sector and Micron led gains in the technology sector.

Macy’s shares surged 10.5 percent, hitting a 52-week high, after the department store operator reported strong results and raised its profit forecast.

The report help boost the consumer discretionary sector , which rose 0.92 percent, while the consumer staples index gained 0.72 percent.

Walmart and Nike, both components of the Dow Jones Industrial Average, and Target were up between 1.4 and 3.2 percent.

Macy’s results come a day after strong April retail sales data showed consumer spending was picking up, stoking inflation worries and sending US government bond yields higher.

At 13:01 am EDT the Dow Jones Industrial Average was up 74.22 points, or 0.30 percent, at 24,780.63, the S&P 500 was up 14.08 points, or 0.52 percent, at 2,725.53 and the Nasdaq Composite was up 55.29 points, or 0.75 percent, at 7,406.92.

Nine of the 11 major S&P sectors were higher, with only the rate-sensitive utilities and real estate sectors in the red.

The technology index was up 0.5 percent, with chipmakers the biggest gainers.

Micron jumped 4.4 percent after RBC Capital Markets rated the stock “outperform,” while AMD gained 3.2 percent on a Susquehanna upgrade to “neutral”.

The two stocks helped the Philadelphia SE semiconductor index gain 1.24 percent.

Among the laggards was 3M Co, which slipped 1 percent and weighed on the Dow after Jefferies cut its rating on the stock to “hold”.

IQVIA dropped 4.4 percent, the most on the S&P, after the FDA found some inaccuracies on sales data regarding some opioid drug products.

Advancing issues outnumbered decliners by a 2.06-to-1 ratio on the NYSE and by a 2.53-to-1 ratio on the Nasdaq.

The S&P index recorded 13 new 52-week highs and three new lows, while the Nasdaq recorded 108 new highs and 39 new lows.

Europe

Italy’s two anti-system parties’ progress to form a coalition and free up billions of euros for tax cuts and welfare scared off investors and hit the Milan bourse on Wednesday while a weak euro provided support to the broader European market.

The pan-European STOXX 600 index rose 0.2 percent, hovering around its highest level since early February but Italy’s FTSE MIB fell 2.3 percent, its worst fall since the election took place in early March.

Italian banks, which are seen as a proxy for political risk in the country due to notably to their government bond holdings, fell 3.68 percent as borrowing costs jumped.

Italy already has a debt pile worth more than 130 percent of annual output and the parties’ pledge to introduce a flat tax rate of 15 percent, new welfare payments and scrap an unpopular pension reform are likely to street the country’s finances.

The fall of the Milan bourse comes after months of outperformance against its European peers despite the fact that the far-right League and the anti-establishment 5-Star Movement emerged as clear winners from the election.

One exception on the Italian market was Saipem, which soared 12.2 percent to the top of the STOXX after it was upgraded by Bernstein to “outperform”, reflecting growing optimism in the recovery of the embattled Italian oil services firm.

The recent surge in crude oil prices has helped the oil and gas sector rise 13 percent so far this year, leading sectoral gainers in Europe.

A weaker euro provided support for dollar-earning European companies as the dollar extended its rally against a basket of currencies on Wednesday and touch a five-month high.

Miners and the broader basic materials sector benefited from the trend and closed 2.79 percent higher.

Among the other top gainers on the STOXX was Homeserve which surged to 9.3 percent after UBS upped its recommendation for the stock to “buy”.

Micro Focus, which rose 6.1 percent after Britain’s leading software company said a new $40 million licensing deal would help bolster its first-half revenue.

Paddy Power Betfair rose 6.7 percent after the bookmaker said it was in discussions regarding a potential combination of its US business and fantasy sports company Fanduel to target the prospective US sports betting market.

Elsewhere, Elior, however, fell 13.9 percent following a profit warning.

Asia

Asian markets mostly fell with Wall Street while the dollar extended gains Wednesday as US interest rate worries resurfaced, while investors were also given a spook by North Korea’s threat to pull out of a historic summit over US demands.

The losses spread to Asia with Hong Kong falling 0.1 percent and Shanghai 0.7 percent off.

Tokyo ended 0.4 percent lower after data showed Japan’s economy contracted in January-March for the first time in two years.

Wellington sank more than one percent, while Manila, Bangkok and Jakarta were also well down. However, Sydney rose 0.2 percent and Seoul edged up 0.1 percent, while Singapore and Taipei were also slightly higher. Key figures around 0810 GMT: Tokyo - Nikkei 225: DOWN 0.4 percent at 22,717.23 (close)

Hong Kong - Hang Seng: DOWN 0.1 percent at 31,110.20 (close)

Shanghai - Composite: DOWN 0.7 percent at 3,169.57 (close)

Dollar/yen: UP to 110.30 yen from 110.33 yen

Oil

Oil fell on Wednesday ahead of an anticipated rise in US crude inventory that could provide more evidence that demand may be slowing in spite of ongoing crude output cuts by producer group OPEC and imminent US sanctions against Iran.

Brent crude futures were last down 65 cents at $77.78 a barrel by 1147 GMT, while US crude futures fell 32 cents to $70.99 a barrel, leaving the spread between the two just shy of a 2015 high of $7 a barrel.

Physical crude markets are sagging under the weight of unsold barrels of oil, while the 50-percent rise in the oil price in the last year is encouraging major companies such as ExxonMobil, Royal Dutch Shell, Chevron, BP and Total to increase output.

Spot crude oil cargo prices are at their steepest discounts to futures prices in years as sellers are struggling to find buyers for West African, Russian and Kazakh cargoes, while pipeline bottlenecks trap supply in west Texas and Canada.

The bottleneck in North America likely contributed to a 4.9 million barrel rise in US crude oil inventories, to 435.6 million barrels, that the private American Petroleum Institute reported on Tuesday.

Gold

Gold prices steadied on Wednesday after falling to their lowest since December as the dollar rallied to 2018 highs and US bond yields sat near multi-year peaks.

The metal had suffered its biggest single-day loss since November 2016 when it fell 1.7 percent on Tuesday after strong US retail sales data sent the dollar and yields soaring. Gold’s declines were accelerated by technical selling as it crashed below its 200-day moving average and the psychologically significant $1,300-an-ounce mark.

Spot gold was flat at $1,289.86 an ounce by 1417 GMT, having gone as low as $1,286.20, its weakest since Dec 27. US gold futures for June delivery were 0.1 percent down at $1,289.20.