Gloomy Economic Data Sap Wall Street's Enthusiasm

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After posting a big rally on Friday, the markets kicked the week on a cautious note as traders reacted to another round of pessimistic news on the world economy.

Today's Markets

The Dow Jones Industrial Average fell 49 points, or 0.39%, to 12727, the S&P 500 slipped 3.1 points, or 0.23%, to 1354 and the Nasdaq Composite dipped 11.5 points, or 0.4%, to 2897.

This week is set to be a busy one from an economic standpoint. There are a slew of closely-watched economic reports on tap, and Federal Reserve Chairman Ben Bernanke is set to testify before Congress on Tuesday. 

A report from the Commerce Department showed retail sales falling 0.5% in June from May, surprising economists who were expecting a 0.2% gain. Excluding the auto segment, sales were down 0.4%; economists had expected sales to remain flat. 

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"The weakness across sectors in June was broad based, which implies a general softening in consumer spending," analysts at Nomura wrote in a note to clients following the report.

Echoing that sentiment, IHS Global Insight Senior Principal Economist Chris Christopher wrote in a research note that "retail sales have hit a brick wall, plain and simple." He added: "The American consumer is not in a healthy state."

The International Monetary Fund revised its outlook for global growth down from its April 2012 forecast by 0.1 percentage point to 3.5% for 2012 and by 0.2 percentage point to 3.9% for 2013. The IMF also cut its U.S. forecast by 0.1 percentage point for 2012 to 2% and revised it lower by 0.1 percentage point to 2.3% for 2013.

"In the past three months, the global recovery, which was not strong to start with, has shown signs of further weakness," the IMF said in a report, noting that downside risks "loom large."

The New York Federal Reserve's gauge of manufacturing activity in the Empire State region pointed to a slightly faster expansion in July from the month before. The measure came in at 7.39, up from 2.29 in June, and better than expectations of 4. The more closely-followed survey from the Philadelphia Federal Reserve is slated for release on Thursday. 

Earnings season is kicking into full gear. J.P. Morgan Chase (JPM) and Wells Fargo (WFC) kicked off bank earnings season on Friday. Citigroup (C) shares rose after the bank reported a second-quarter profit that beat analysts' expectations. 

Elsewhere, the Wall Street Journal reported that the European Central Bank advocated making senior bondholders on certain bailed out Spanish banks incur losses. This would represent a major change in direction, and one that could potentially hurt confidence in the Spanish banking sector. European markets largely shrugged off the report, with credit spreads on Spanish debt holding essentially steady, according to financial-data firm Markit.

Oil futures jumped on the back of reports that an American ship fired "disabling shots" at another ship in the territorial waters of the United Arab Emirates. The waters are not far from the Strait of Hormuz, a critical oil passageway. The benchmark crude oil contract traded in New York climbed $1.20, or 1.4%, to $88.30 a barrel. Wholesale New York Harbor gasoline rose 1.4% to $2.856 a gallon. 

In metals, gold slumped 80 cents, or 0.05%, to $1,591 a troy ounce. 

Foreign Markets

The Euro Stoxx 50 fell 0.32% to 2252, the English FTSE 100 dipped 0.07% to 5662 and the German DAX gained 0.13% to 6566. 

In Asia, the Japanese Nikkei 225 rose 0.05% to 8724 and the Chinese Hang Seng edged up by 0.15% to 6546.