Precious metals received a boost to start the day today, as weaker than expected retail sales figures and soft consumer price pressures deflated the US dollar. Gold prices jumped above the $1,230 mark on the sudden dollar weakness, adding to yesterday's gain of six dollars an ounce. Silver prices have also already matched Thursday's gains.
This morning's weak retail sales numbers just added fuel to yesterday's fire in the retail sector. Macy's reported a 38% drop in profit yesterday, compared to the same time last year. This alarming news sent their stock down 17%. The "suction effect" of the tumble by Macy's dragged down most other mall retailers as well. Analysts expect the carnage to continue today as JC Penney reported far weaker sales and far larger net losses this morning, sending its share price crashing to an all-time low.
This news is setting up the Dow for its fourth day of losses in a row. The dollar also lost ground as the most recent reading for the consumer price index (CPI) is expected to disappoint. The weaker dollar helped lift gold on Friday morning.
Retail sales in April were helped by an increase in auto sales, rich rose 4.5% year on year. Presumably, people were using their tax refunds to put a down payment on a new set of wheels. This is good news for automakers, who are battling a glut of vehicles in new car inventory.
One major inflation factor of both wholesale and retail inflation is energy costs. The price of gasoline last month rose 1.1%, and 9.3% measured year on year. To some extent, the price of oil is nearly as important to central banks trying to encourage inflation as it is to oil companies themselves.
On that note, crude prices may be seeing a bounce from oversold conditions. Oil futures settled higher for the second day Thursday, with both Brent and West Texas Intermediate gaining 1.1%. This follows a more than 3% jump Wednesday, after the Energy Information Administration reported a far larger drop in US crude stockpiles than expected.
The malaise in stock markets in both Europe and the US have Treasuries recouping yesterday's losses. Yields rose on higher than expected wholesale prices released yesterday. Odds that he Federal Reserve will raise interest rates next month, as perceived by the market, will be the main driver of bond prices and dollar strength, absent a big geopolitical event.
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