US retail sales weaker than expected but markets fear higher interest rates

US retail sales in April were weaker than expected, Reuters reports.

Commerce Department data showed sales at U.S. retail stores rose a smaller-than-expected 0.5 percent in April... But retail sales excluding gasoline edged up just 0.1 percent after rising 0.7 percent in March...

Retail sales excluding cars and parts increased 0.7 percent in April after a revised 0.5 percent rise in March. This was previously reported as a 0.4 percent gain.

The Reuters report also highlighted the fact that business inventories rose in line with sales in March.

Commerce Department data showed that March business inventories rose a larger-than-expected 0.7 percent in March as automotive and building material stocks climbed...

Business sales kept pace with inventories, rising 0.7 percent in March after an unrevised 0.6 percent decline in February. This kept the inventories-to-sales ratio, a measure of how long it would take to deplete stocks at the current sales pace, unchanged at 1.26 months, just above the record low of 1.25 months in January.

And jobless claims fell last week.

Labor Department data showed new claims for jobless aid fell 1,000 last week. But they were higher than expected due to a partial government shutdown in Puerto Rico that added about 20,000 claims.

First-time claims for state unemployment insurance benefits dipped to 324,000 last week...

The four-week moving average of new claims...rose to 317,250 last week, up 2,500.

The number of people who continued to collect jobless benefits after drawing an initial week of aid fell 49,000 to 2.392 million in the week ended April 29, the lowest since January 2001 and below forecasts of 2.450 million claims.

Despite the weaker-than-expected retail sales, US bond yields rose yesterday, without helping the US dollar.

Yields on the benchmark U.S. Treasury 10-year note were up in late New York trade at 5.16 percent from 5.13 percent on Wednesday. The dollar slipped to a year-low against the euro while stocks fell, upset by rising oil prices.

And US stocks were pummelled yesterday, as Bloomberg reports.

U.S. stocks fell the most since January as surging gold and oil prices increased concern the Federal Reserve will raise interest rates to contain inflation...

The Dow average fell 141.92, or 1.2 percent, to 11,500.73, retreating from its second-highest close. The Standard & Poor's 500 Index lost 16.93, or 1.3 percent, to 1305.92. The Nasdaq Composite Index dropped 48.04, or 2.1 percent, to 2272.70. All indexes had their worst declines since January 20.

And rising interest rates appear likely to be global, with euro zone economies continuing to accelerate.

The $10 trillion economy expanded 0.6 percent in the first quarter from the last three months of 2005, when it grew 0.3 percent, the European Union's statistics office said in Luxembourg today. The 2 percent growth rate from a year ago was the fastest since the second quarter of 2004.

And perhaps in the UK too, after strong growth in March manufacturing output:

The Office for National Statistics said manufacturing output rose 0.7 percent in March, after a 0.1 percent fall in February. That was more than three times higher than analysts' expectations and the strongest rise since April 2005...

The broader measure of industrial production, which includes North Sea oil fields as well as electricity, gas and water, also rose more than expected -- up 0.7 percent in March, and by 0.3 percent on the year.

...and April GDP:

The country's economy probably grew by 0.6 percent in the three months to April, economic think tank NIESR said on Friday, with steady growth and price pressures warranting an imminent rise in interest rates from 4.5 percent.

And very probably in Japan too.

Loans held by Japan's four main categories of banks rose 1.2 percent in April from a year earlier, Bank of Japan data showed on Thursday. It was the biggest rise since the current method of calculation began in January 2001...

Excluding special factors such as loan write-offs, the overall loan balance rose 2.1 percent from the same month a year earlier.

"The uptrend in bank lending is continuing," a BOJ official told reporters...

Data on Tuesday also showed Japan's most widely watched measure of money supply -- M2 plus certificates of deposit (CDs) -- rose 1.7 percent in April from a year earlier.

But overheating China faces a dilemma as its inflation rate appears to be falling. Xinhua Online reports China's industrial producer prices for April:

China's industrial producer prices increased by 1.9 percent in April over the same period of 2005, the National Bureau of Statistics (NBS) said here Thursday...

The industrial producer prices in the first four months were up 2.6 percent over the same period of last year....