Strong Retail Sales Data Pressuring Stocks

The August report shows a 1.2% gain and a 0.7% rise in the core number.
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A stronger-than-expected retail sales report is putting some pressure on stocks this morning.

Sales gained 1.2% overall, blowing past the consensus estimate in the

Reuters

poll of a 0.8% gain. The core rate, which excludes last month's booming auto sales, gained 0.7%, surpassing the expected 0.4% increase.

Stock futures and bonds moved lower on the news, which may reignite Wall Street's inflammable inflation fears. At 9:05 a.m. EDT, the

S&P 500

futures were down 6.7, more than 4 points below fair value and indicating a dip at the open. The 30-year Treasury was lately down 18/32 to 100 15/32, its yield rising to 6.09%.

Nonetheless, traders weren't getting themselves too worked up about the inflationary implications of today's sales figures. Not with the

Consumer Price Index

, the truest measure of inflation, due out tomorrow.

"Retail sales are always volatile," said Jim Herrick, managing director of trading at

Robert W. Baird

. "I can't imagine that this will sway the

Fed

-- the CPI is more important."

Despite the opening weakness suggested by the futures, Herrick has a gut feeling the the market will rebound as the day progresses: "I sense the old adage, 'buy on the dips,' is going to be in force today."

Speaking of booming auto sales -- they hit a 13-year monthly high in August --

DaimlerChrysler

(DCX)

is showing some extreme confidence that that retail trend will continue for years to come. The company said this morning at the Frankfurt Auto Show that it plans to spend a whopping $48 billion in an effort to introduce 64 new car models by 2004. DaimlerChrysler, not to mention the auto sector in general, may move higher on the news today; the stock was lately up 2.5% in Frankfurt trading.

Meanwhile,

China.com

(CHINA)

investors are nervously watching the latest development in the always tense relationship between the Chinese government and the Internet. Information Minister Wu Jichuan said that China's current policy does not allow foreign investment in Chinese Internet businesses, and that it "will correct these irregularities." It's not clear what form the government's "corrections" will take or how they will affect companies like China.com, which is part-owned by

America Online

(AOL)

and was publicly floated on the

Nasdaq Stock Market

in mid-July.

Also lurking this morning is the

Commerce Department's

second-quarter current-account report, due out at 10 a.m. After seeing that last month's wider-than-expected trade deficit put some

short-term pressure on stocks, more than a few in the market will be keeping one eye on the usually little-watched report.

Overnight in Tokyo, the yen's latest show of strength prompted the

Bank of Japan

to enter the foreign exchange markets for the second time in less than a week. This time the BOJ reportedly spent about $1 billion to support the dollar against the yen, about half of what it was estimated to have spent in last week's action.

Ministry of Finance

official Nobuaki Usui confirmed that Japanese monetary authorities had intervened.

Intervention began with the dollar around the 106.30 level, and brought it as high as 107.30 yen. But market participants used the opportunity to buy yen on the dip, and the greenback was lately quoted at 106.23 yen.

The yen's unflagging strength put pressure on Japanese export-oriented stocks. The

Nikkei

fell 132.07, or 0.7%, to 17,777.22.

In Hong Kong, consolidation among blue-chips sent the

Hang Seng

down 56.82, or 0.4%, to 13,804.03. The benchmark index was laboring under the weight of heavyweight component

HSBC Holdings

(HBC)

, which fell 1.3%.

European markets turned from black to red in the face of the hot U.S. retail sales figures. In London, the

FTSE

was sinking 23.8 to 6145.2 despite today's release of weaker-than-expected U.K. inflation data. The headline August retail price index gained 0.2% for a year-over-year rise of 1.1% -- the lowest rate since 1963. The core rate, which excludes mortgages, added 0.2% for a 2.1% year-over-year increase, the slowest clip since October of 1994.

The Paris

CAC

was down 15.59 to 4701.19, while Frankfurt's

Xetra Dax

was 9.21 higher to 5437.70.

Tuesday's Wake-Up Watchlist

By

Eileen Kinsella

Staff Reporter

Mergers, acquisitions and joint ventures

Finnish telecom giant

Nokia

(NOK) - Get Report

won a $76 million deal with

Picus Communications

, Virginia Beach, Va., to supply high-speed data and voice digital subscriber line, or DSL, broadband network technology.

Scottish & Newcastle

, one of the largest pub companies in the U.K., agreed to buy 826 bars, restaurants and hotels from

Greenalls

for $1.8 billion, in an effort to keep pace with fast-growing rivals.

Solectron

(SLR)

said it would buy

Smart Modular Technologies

(SMOD)

in a deal valued at $2 billion in stock.

Earnings/revenue reports and previews

Pier 1 Imports

(PIR) - Get Report

reported second-quarter earnings of 12 cents a diluted share, in line with the 16-analyst estimate and down from 17 cents a year ago. The company said same-store sales for the quarter declined 1.8%.

Analyst actions

Merrill Lynch

raised

Estee Lauder

(EL) - Get Report

to accumulate from neutral and set a share price target close to 50. The stock closed Monday at 40 5/8.

Miscellany

U.S. retail sales rose 1.2% in August, the

Census Bureau

reported, exceeding the expected 0.8% rise. Excluding auto sales, which were strong in August, retail sales rose 0.7%, as compared with economists' expectation of a rise of 0.4%.

Bank stocks may be ripe for a beating, according to today's Heard on the Street column in

The Wall Street Journal

. Bank stocks have fallen 11% since the last

Federal Reserve

rate increase, compounding banks' existing problems of slower loan growth and other revenue challenges. Bigger problems may lie ahead, the columns says, as a result of declining commercial loan quality and rising interest rates weighing down securities portfolios.

Federal prosecutors charged

Princeton Economics International

Chairman Martin Armstrong with securities fraud for allegedly stealing $1 billion from Japanese investors. Prosecutors said that Princeton Economics, which isn't affiliated with the Ivy League university, hid hundreds of millions in trading losses in 300 Japanese investors' accounts. Officials claim that Princeton, which told investors that their accounts would be individually handled and conservatively invested, combined the accounts, applying money from one to the interest payments on another. Armstrong could serve up to 10 years in jail if convicted.

Thai Airways International

is seeking to obtain $576 million in new 12-year foreign currency loans to finance the acquisition of five

Boeing

(BA) - Get Report

aircraft.