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Futures are down nearly 10 points, not surprising given AIG, a strange but generally disappointing retail sales report, and jobless claims higher than expected.
ECB [ECBE
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] and the Bank of England left rates unchanged.
Very odd retail sales reports for July, though generally downbeat:
a) Wal-Mart trading down 3 percent pre-open; Wal-Mart's comp store sales were up 3.0 percent in July, below the estimate of 3.4 percent, a bit of a surprise given the effect of the stimulus checks. They had beat expectations for the past several months, so many were expecting them to beat again. August comp store guidance of up 1-2 percent is also conservative.
They said: "With the end of the stimulus checks, we know consumers are spending more cautiously, and we continue to see a pronounced paycheck cycle at the end of the month. We also continue to see improvement in our customer traffic, relative to last year."
2) other discounters were mixed: Costco [COST
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] was up 10 percent, more than the 7.5 percent expected; BJ's Wholesale [BJ
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] were also better than expected, but they have a slightly more affluent consumer and also get more business traffic than Wal-Mart [WMT
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]; but Target [TGT
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] was down 1.2 percent, below Target's own estimate of a loss of 1 cent to a gain of 1 cent.
b) teen retailers were also very mixed: Hot Topic [HOTT
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], American Eagle [AEO
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], Pacific Sunware [PSUN
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] were weaker, as was American Eagle, which guided below consensus for the quarter.
Aeropostale [ARO
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], however, was higher than expected and they raised guidance.
c) Apparel, not surprisingly, had a tough time. Gap [GPS
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]missed but guided higher ($0.30-$0.31 vs. $0.23 consensus). Abercrombie [ANF
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] was also worse, and their guidance is below expectations. JC Penney [JCP
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] had a lousy comp number but like Gap they guided higher, implying they are keeping their margins.
Bottom line: second half of the year will be tough, expect a lot of promotions. Inflationary pressure is high, but throw in job losses, credit card debt, tight credit, home prices still declining, and you have the makings of a worried consumer.
Elsewhere:
1) AIG [AIG
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] down 13 percent pre-open as they reported a net loss of $5.4 billion. The operating loss was $0.51 a share, well below the expected gain of $0.63, the third straight quarter of losses. Big writedowns on credit default swaps ($5.5 b) and impairments on their investment portfolio ($6 b, for residential mortgage backed securities, or RMBS) were the primary problem, but results from Property and Casualty [IPCC
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], a core business, were also disappointing. There is considerable discussion this morning about whether:
1) AIG will need to raise capital to protect its ratings, and 2) whether new CEO Richard Willumstad has really "kitchen sinked" the quarter.
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