Mid-Morning Recap: Geithner Looks to Help Small Banks; Mortgage Applications Fall

Markets were hit with three poor data points before the opening bell on Wednesday. Mortgage Loan Applications took a tumble, April’s Retail Sales report unexpectedly fell, and a rise in import prices heavily outweighed a gain in export prices.

In the minutes following the latter two releases, S&P 500 futures fell 16.7 points, Dow futures lost 140 points, and Nasdaq futures were off 20.50 points. Roughly an hour into the trading session, not much has changed: the S&P is down 1.32% to 896, the Dow is down 1.33% to 8356, and the Nasdaq has fallen 1.53% to 1689.

Further Details:

At 7 am, the Mortgage Bankers Association said weekly loan applications fell 8.6% for the week ending May 8, despite the 30-year fixed-rate mortgage decreasing to 4.76% from 4.79%.

The Market Composite Index, a seasonally-adjusted measure of mortgage loan application volume, fell to 895.6 in the week, decreasing from a 979.7 level one week prior. The four week moving average is also down 5.1%.

At 8:30 am, the key release of the week, U.S. Retail Sales, fell 0.4% in April, against expectations of a modest increase. In addition, the prior month’s 1.2% decrease was revised down to -1.3%.

Excluding auto sales, the results were slightly worse with a -0.5% reading in April.

“This is not a pretty report no matter how you look at it,” said Brian Bethune, chief financial economist at IHS Global Insight. “Granted, consumer prices may have declined slightly in April, and that will buffer a small fraction of the decline, but spending weakness was fairly broad based with declines across most major channels.”

Also released at 8:30 am was the Import/Export Price Index for April. Import Prices rose more than expected with a +1.6% reading in the month, the Bureau of Labor Statistics said. Export prices hardly matched the advance with a mere 0.5% advance.

At 9 am, while announcing efforts to help smaller banks with less than $500 million capital, Treasury Secretary Tim Geithner said “The financial system is starting to heal.”  Speaking about the housing market, Geithner said interest rates on a 30-mortgage have dropped to “an historic low”, while refinancing has surged. 

Geithner said housing was one of many “welcome signs” recently, but he struck a cautious tone looking forward. “The process of financial recovery and repair is going to take time,” he said.

At 10 am, March’s report on Business Inventories posted its seventh consecutive decline with a 1.0% fall. The Bloomberg consensus had been looking for a 0.8% decline.  following a downwardly revised 1.4% decrease in the month before. 

Outside of data news, the Wall Street Journal is reporting that the Obama administration “has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money.”