While you were sleeping US consumer delivers

Wednesday 15th August 2012

Wall Street advanced, along with equities in Europe, amid reports of better-than-expected economic resilience on both sides of the pond.

US retail sales climbed 0.8 percent in July, according to Commerce Department data, surpassing analysts' expectations for a gain of 0.3 percent. It was the first increase in four months and a welcome sign of life from the driving force behind the world's largest economy.

"Here comes the US consumer," Harm Bandholz, an economist at UniCredit in New York, told Reuters.

Indeed, Home Depot posted a better-than-expected profit in the second quarter and raised its full-year profit estimate. Shares of the home improvement retailer gained 3.9 percent.

Other retailers showing strength included Michael Kors and Estee Lauder, which both reported quarterly profits that exceeded estimates and provided solid outlooks for the full year.

Separate reports today showed that inventories at US companies climbed in June at the most tepid pace in nine months, while wholesale prices rose more than forecast in July.

In late afternoon trading in New York, the Dow Jones Industrial Average rose 0.17 percent, as did the Standard & Poor's 500 Index, while the Nasdaq Composite Index gained 0.11 percent.

Wall Street also drew strength from the latest euro-zone gross domestic product data. The pace of expansion in Germany, Europe's largest economy, eased less than expected in the second quarter, increasing 0.3 percent from the first quarter.

France's GDP surprised by being steady for the quarter, instead of showing a decline as economists had predicted.

The euro-zone economy shrank 0.2 percent in the second quarter, which was in line with expectations.

Europe's Stoxx 600 Index finished the session with a 0.7 percent gain on the previous close. Benchmark stock indexes in Germany, the UK and France all advanced.

"While not great in any way, German and French GDP numbers were better than expected, which adds to the scenario that there is no risk of an imminent euro break up," Alexander Kraemer, a cross-asset strategist at Commerzbank in Frankfurt, told Bloomberg News. "It shows global growth is not collapsing, which also helps reduce investment risks."

Even so, solving the euro region's sovereign debt crisis requires a lot more work. The UK is pressing for the European Central Bank to share power with national regulators as it takes over euro-area bank supervision, according to policy planning documents obtained by Bloomberg.

The ECB should have a core set of central powers to oversee all banks in the 17-nation currency bloc while delegating some tasks to individual countries, under one option favoured by the UK and European Union economic policy officials. The ECB supports a similar "light touch" approach that would leave day-to-day supervision for most banks in the hands of national authorities, according to the documents obtained by Bloomberg.

BusinessDesk.co.nz

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