Import Prices Decelerate, Retail Sales Fall, Confidence Weakens, Inventories Rise

- The Import Price Index for June rose .1% versus estimates of a .2% increase and a 1.7% gain in May.
- Advance Retail Sales for June fell .1% versus estimates of a .4% increase and a .1% gain in May.
- Retail Sales Less Autos for June rose .3% versus estimates of a .4% increase and an upwardly revised .7% gain in May.
- Preliminary Univ. of Mich. Consumer Confidence for July fell to 83.0 versus estimates of 85.6 and a reading of 84.9 in June.
- Business Inventories for May rose .8% versus estimates of a .4% gain and a .7% rise in April.

BOTTOM LINE: The cost of goods imported into the US rose in June by the smallest amount in three months as petroleum prices fell, Bloomberg said. I expect import prices to bounce higher in the near-term before decelerating meaningfully over the intermediate-term.

Sales at US retailers unexpectedly fell in June as consumers, Bloomberg reported. I expect retail sales to continue to decelerate to around average levels of 2.8% through year-end.

Confidence among US consumers unexpectedly weakened this month, reinforcing concern about a cooling economy, Bloomberg reported. The current conditions component of the index, which is a gauge of Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items, fell to 100.8 from 105.0 the prior month. Consumers expect the inflation rate to rise 3.1% over the next year versus expectations of a 3.3% 12-month increase in June. Consumer confidence will likely remain around current levels in the near-term before rebounding in the fourth quarter.

Inventories at US companies rose more than forecast in May, reflecting the biggest jump in unsold automobiles since March 1999 as dealers struggled with lackluster demand, Bloomberg said. Inventories relative to sales matched an all-time low. Inventories at auto dealers rose 3.2%, the biggest increase since March 1999. Sales of autos fell 2.1%. Inventory rebuilding should held cushion decelerating demand.

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Friday Watch

Late-Night Headlines
Bloomberg:
- Comcast(CMCSA) and Time Warner(TWX) won approval from the FCC to buy Adelphia Communications for $17.6 billion in the largest US bankruptcy sale.
- India’s airlines, Asia’s biggest customers for Airbus SAS and Boeing(BA) last year, may slow or even cancel orders as they face difficulty raising funds amid mounting losses.
- The US Attorney in San Francisco became the first federal prosecutor to publicly confirm he’s probing companies that may have committed fraud by altering grant dates of stock options, announcing creation of a task force to examine the matter.
- New York Attorney General Eliot Spitzer sued 8 memory chip makers, including Micro Technology(MU), for conspiring to fix prices, claiming they added $1 billion to chip costs while driving up retail prices for personal computers and other electronics.
- Samsung Electronics posted an 11% drop in second-quarter profit after cutting handset prices to compete against rivals Nokia Oyj(NOK) and Motorola(MOT).
- Forest Labs’(FRX) patent for the antidepressant Lexapro is valid, a federal judge ruled.
- Lehman Brothers Holdings(LEH) advised clients to reduce bets on emerging-market currencies.
- Crude oil rose above $78 a barrel in NY for the first time as escalating violence in the Middle East and disruptions in Nigeria prompted speculators to increase their bets on rising energy prices.

Wall Street Journal:
- Nucor Corp.(NUE) and domestic competitors want the nation’s trade officials to take action against China for continuing to subsidize its steelmakers.

London-based Times:
- Liz Claiborne(LIZ), which owns Lucky Brand and Mexx stores, plans to expand its presence in the UK and Europe by spending up to $400 million in brands and acquisitions, citing CEO Charron.

AP:
- The Massachusetts Turnpike Authority found the Boston tunnel system in which a woman was killed by falling debris has at least 230 other points where bolts are lossening.

USA Today:
- As many as 40% of new or recently converted condominiums in cities such as Las Vegas and Phoenix and in parts of Florida will be turned into apartments in 18 months.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (IP) to Buy, target $38.
- Upgraded (BKI) to Buy, target $10.
- Reiterated Buy on (MOT), target $29.

Business Week:
- Abercrombie & Fitch(ANF) may rise as much as 38% because earnings may grow on higher sales from purchases by affluent teens, citing Buckingham Research’s Barbara Wyckoff.
- Southern Union(SUG), which owns 10,000 miles of pipeline that moves natural gas from the southern US to the Great Lakes region, may rise as much as 50% after a shareholder requested that the company be sold, citing Winchester Capital Advisors’ Benjamin Segal.

Night Trading
Asian Indices are -2.0% to -1.25% on average.
S&P 500 indicated -.30%.
NASDAQ 100 indicated -.47%.

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Company/EPS Estimate
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Economic Releases
8:30 am EST
- The Import Price Index for June is estimated to rise .2% versus 1.6% increase in May.
- Advance Retail Sales for June are estimated to rise .4% versus a .1% increase in May.
- Retail Sales Less Autos for June are estimated to rise .4% versus a .5% increase in May.

9:45 am EST
- The Preliminary Univ. of Mich. Consumer Confidence reading for July is estimated to rise to 85.5 versus a reading of 84.9 in June.

10:00 am EST
- Business Inventories for May are estimated to rise .4% versus a .4% increase in April.

BOTTOM LINE: Asian indices are sharply lower, weighed down by exporting stocks in the region. I expect US equities to open lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

***Alert***

I am unable to post Thursday's close due to a scheduling conflict. I will post tbe Friday Watch later this evening.

Stocks Sharply Lower into Final Hour on Rising Geopolitical Tensions

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semi longs, Internet longs and Retail longs. I added to my (EEM), (IWM) and (QQQQ) shorts today, thus leaving the Portfolio 50% net long. The tone of the market is very negative as the advance/decline line is substantially lower, every sector is falling and volume is heavy. I suspect we are setting up for a very sharp snapback rally in stocks next week as sentiment is deteriorating rapidly. Dovish comments from Bernanke, better earnings reports from key companies and a calming in Middle Eastern tensions should provide the catalysts. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- Israel bombed Beirut’s international airport and two Lebanese army airfields, while rockets from Lebanon landed in Israel’s third-biggest city as a military confrontation sparked by Hezbollah intensified.
- Crude oil rose above $76 a barrel for the first time, as violence in the Middle East and Nigeria posed a threat to supplies.
- California and 33 other states plan to file a price-fixing lawsuit seeking “hundreds of millions of dollars” from Infineon Technologies, Hynix Semi and five other computer memory-chip makers.

Wall Street Journal:
- Staples Inc.(SPLS) is using contests to find amateur inventors with exclusive items it can sell under its own brand.
- San Francisco officials are examining telecom contracts with AT&T(T) to determine whether action should be taken against the company for alleged cooperation with the National Security Agency, citing Mayor Gavin Newsom.
- Harvard University faces the loss or postponement of four donations, totaling $390 million, as a result of Lawrence Summer’s resignation as president of the university.
- Biotech companies are increasingly choosing to be acquired by bigger pharmaceutical companies instead of going for an IPO, citing a study by Bain & Co.
- Capital One Financial’s(COF) auto-lending unit is testing an online car buying service that lets users get a guaranteed ceiling price before walking into a dealership.

NY Times:
- Weinstein Co. and BET Holdings are close to forming a joint venture to make so-called urban movies and television shows.

Emirates Today:
- General Motors(GM) sold 20% more cars in the Middle East in the first half of the year than it did in the same period last year, led by the United Arab Emirates, where business doubled.

Neue Zuercher Zeitung:
- Swiss and US governments have signed an agreement to broaden their cooperation in anti-terror investigations.