While you were sleeping: Strong US retail sales

Friday 14th August 2015

Equities on both sides of the Atlantic advanced after a report showing strong US retail sales bolstered optimism about the outlook for corporate profits and the economy, while concern about China's currency depreciation eased.

A Commerce Department report showed US retail sales rose 0.6 percent in July. Sales in June were unchanged, revised from the 0.3 percent drop initially reported.

The data helped bolster expectations the Federal Reserve will raise interest rates as early as September.

"US consumers are out there spending and driving a large part of economic growth,” Luke Tilley, chief economist at Wilmington Trust in Wilmington, Delaware, told Reuters. “It means the Fed will be confident that the economy is still on fairly strong footing and supports the view that they could raise rates in September.”

Tuesday's unexpected currency devaluation by China’s central bank, which is trying to stoke the nation’s pace of economic growth, initially prompted bets US policy makers might delay a rate increase. The People Bank’s of China on Thursday pledged support for the yuan, saying there was no reason for the depreciation to continue.

The probability of a US rate increase in September rose to 48 percent from 40 percent Tuesday, according to futures trading data compiled by Bloomberg.

In fact, a Reuters poll of economists published on Thursday showed expectations the Fed will raise rates twice this year. The survey offering a median 55 percent chance the US central bank would raise its short-term lending rate twice this year.

In late trading in New York, the Dow Jones Industrial Average gained 0.5 percent, the Standard & Poor’s 500 Index added 0.3 percent, while the Nasdaq Composite Index advanced 0.4 percent.

Gains in shares of Cisco and those of Travelers, last up 3.8 percent and 2percent respectively, led the Dow higher.

Cisco shares advanced after the company reported quarterly earnings that surpassed expectations.

Shares of News Corp gained, last 7.7 percent higher, after the company said it is in the “final phase” of discussions to sell its Amplify education unit.

In Europe, the Stoxx 600 Index ended the day with a 1 percent increase from the previous close. Germany’s DAX Index rose 0.8 percent, while France’s CAC 40 Index advanced 1.3 percent. The UK’s FTSE 100 Index slipped 0.04 percent.

Oil slid to the lowest level in six years amid concern about a worldwide glut. West Texas Intermediate for September delivery dropped 3.1 percent to US$41.98 a barrel on the New York Mercantile Exchange, while Brent for September settlement fell 1.3 percent to US$49.03 a barrel on the London-based ICE Futures Europe exchange.

“I have a really hard time painting a bullish scenerio for oil,” Stephen Schork, president of the Schork Group in Villanova, Pennsylvania, told Bloomberg. “Once prices break through the six year lows traders will be gunning for US$39.”

BusinessDesk.co.nz

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