New York: Investors moved out of US stocks and into relatively safer assets such as Treasuries and the dollar on Tuesday after an unexpected drop in US retail sales dampened hopes that the world’s largest economy could be stabilizing.
Expectations of a faster-than-forecast recovery in the Chinese economy boosted the price of metals as well as emerging equity markets, at least during the first half of the session. European shares also closed higher as miners rose.
But disappointing US economic data poured cold water on Wall Street, also dragging Latin American stocks lower in the afternoon.
The most frustrating piece of data came in a government report that showed US retail sales dropped 1.1% in March after rising for two straight months. US producer prices also fell unexpectedly in March, notching the largest year-on-year decline since 1950.
“I think this serves as a reminder that the recession is still here and that rising unemployment, declining income as well as a deep plunge in household net worth will adversely affect retail sales indefinitely,” said John Lonski, chief economist with Moody’s Investors Service.
President Barack Obama echoed the general cautious tone, saying in a speech at Georgetown University that there were signs of progress in battling the recession, but “by no means are we out of the woods just yet.”
Wall Street sank, pressured by the retail sales numbers and a sharp decline in the shares of banks. Investors fear that Goldman Sachs’ $5 billion stock offering could prompt competitors to do the same.
Equity offerings are traditionally a drag due to their dilutive effect.
The Dow Jones industrial average closed off 137.63 points, or 1.71%, at 7,920.18, while the Standard & Poor’s 500 Index declined 17.23 points, or 2.01%, to 841.50. The Nasdaq Composite Index fell 27.59 points, or 1.67%, to 1,625.72.
US Treasury debt prices rallied as a result, also boosted by purchases of $7.3 billion in bonds by the Federal Reserve.
The dollar gained against a basket of major trading-partner currencies as investors favored assets seen as safe havens. The US Dollar Index rose 0.22% to 84.796 from a previous session close of 84.614.
The euro weakened 0.76% to $1.3261. Against the Japanese yen, however, the dollar was down 1.08% at 98.95 from a previous session close of 100.03.
Expectations that the Chinese economy might be recovering at a faster-than-expected pace supported the price of metals such as copper, which touched its highest level in six months during the session.