Market sentiment improved modestly as solid earnings reports in the US retail sector, success in peripheral European bond auctions and stronger-than-expected US industrial production upstaged weakness in the housing market. Stock markets rose with DJIA and S&P 500 gaining +1.01% and +1.22% respectively while Stoxx600 climbed +1.1%. USD and JPY eased amid rise in risk appetite. In the commodity sector, oil price rebounded after declining for 5 days with the front-month WTI contract edging +0.50% to 75.77 at close. The contract soared to as high as 76.63 at one point. Heating oil and gasoline also advanced, rising +1.87% and +1.50% respectively. Gold was a tad higher but gains was limited.

Wal-Mart Stores, the world's largest retailer, recorded a +3.6% y/y increase in net profit to 3.6B (0.97/share) in 2Q10. The company also revised by the full-year profit estimates to 4.05/share from around 4/share projected previously. Home Depot, the largest home utility retailer in the US, saw net profit surging +6.8% y/y to 1.19B (0.72/share) in 2Q10. This was above consensus of 0.71/share. Strong earnings results from retailers boosted optimism on US' consumer spending which has been constrained by uncertain economic outlook and dismal employment situation.

Another surprise came from industrial production which expanded +1% m/m in July, compared with consensus of +0.5% and June's +0.1%. Meanwhile, capacity utilization also rose to 74.8% (consensus: 74.5%) from 74.1% in June. This helped alleviate concerns arose from the housing market. Housing starts rose+5.2% to 546K in July from a downwardly revised 537K in the prior month. The market had anticipated a rebound to 560K. Building permits plunged -3.1% to 565K during the month.

Earlier in European session, both Spain and Ireland were successful in their bond auctions. Spain raised 5.5B euro from 12-month and 18-month bills. Strong buying interests (bid-to-cover ratio for 12-month bills was 2.47 and that for 18-month bills was 3.85) helped lower interest rates to 1.84% on the 12 month (down from 2.22%) and to 2.08% on the 18-month (down from 2.33%). At the same time, Ireland raised 1.5B euro from 4-year and 10-year bonds. Similar to the Spanish auction, the demand was so strong that it lowered the yield of 10-year bonds to 5.38% from 5.54% in July. The yield for 4-year bonds however rose to 3.63% from 3.11%. Abilities of peripheral European economies to raise capitals from the public indicate market confidence on these countries remains intact.

After market close, the industry-sponsored API reported that crude oil increase rose +5.87 mmb to 358.6 mmb. Stockpiles for gasoline and distillate also rose +2.03 mmb and +2.00 mmb respectively. The US Energy Department is expected to report decline in crude and gasoline inventory while that for distillate continued to increase.

market. Currently trading at 78.10, oil price was weighed down by the unexpected widening in US' trade deficits in June and the decline accelerated after the inventory report.

Weekly change in inventory as of 13/08/10 ChangeMarket Expectation Previous
Crude oil  -2.40 mmb-2.99 mmb
Gasoline  +0.25 mmb+0.41 mmb
Distillate  +1.75 mmb+3.46 mmb

Comparison between API and EIA reports:



API (Aug 13)

EIA (Aug 13)

ActualInventoryPrevious
Forecast (using API's inventory level)Inventory
Crude oil+5.87 mmb358.61 mmb-2.18 mmb

+3.62 mmb

359 mmb
Gasoline+2.03 mmb225.54 mmb-1.50 mmb
+2.16 mmb226 mmb
Distillate+2.00 mmb167.66 mmb+2.29 mmb
-5.48 mmb168 mmb

API collects stockpile information on a voluntary basis from operators of refineries, 76% of the time, using data in the past 4 years.

Source: Bloomberg, API, EIA