While you were sleeping US data, Merkel buoy markets

Friday 17th August 2012

Wall Street found reasons to rally as Cisco's results surpassed expectations, the latest US economic data surprised on the upside and German Chancellor Angela Merkel signalled conditional support for ECB bond buying.

US residential building permits rose to an 812,000 annual rate in July, the highest level since August 2008, yet another sign that the nation's flagging housing market may be set to rebound.

A separate report showed that the number of Americans filing applications for unemployment benefits was steady last week, providing a welcome sign of decent news for the labour market.

"It's certainly further evidence the labour market doesn't look like it's in danger of falling off a cliff," Jeremy Lawson, senior US economist at BNP Paribas in New York, told Bloomberg News. "At the same time, the hiring rate is still fairly soft."

Indeed, the latest data kept alive hopes that the US Federal Reserve might see a reason to aid the pace of expansion sooner rather than later by trying to make it easier for companies and consumers to borrow money.

"We are still pricing in QE3," Ellis Phifer, senior market analyst at Raymond James in Memphis, Tennessee, told Reuters. "If the numbers are bad, stimulus will be closer."

Still, it wasn't all good news. Among disappointing data released today were housing starts, which declined 1.1 percent to a 746,000 annual rate in July.

The Philadelphia Federal Reserve Bank said its business activity index, which measures activity at factories in the mid-Atlantic region, was at minus 7.1 in August.

In late afternoon trading in New York, the Dow Jones Industrial Average gained 0.63 percent, the Standard & Poor's 500 Index rose 0.65 percent and the Nasdaq Composite Index advanced 0.92 percent.

Shares of Cisco, which increased its dividend at the same time as it released its latest results after the markets closed yesterday, rose 9.7 percent.

To be sure, as with the economy, the outlook is mixed for corporate America too. Wal-Mart today warned that its full-year results may fall short of expectations. The stock dropped more than 3 percent.

And Facebook shares sank further, to a fresh record low, as a lockup period that prevented some insider sales expired. The stock recently traded at US$20.09, compared with the US$38 IPO price.

Europe's Stoxx 600 Index increased 0.3 percent from the previous day's close. The index has climbed 16 percent from its lowest level this year on June 4, according to Bloomberg.

On a state visit to Canada, Merkel provided a boost for the euro zone, saying she's in agreement with the ECB's efforts to bolster the euro.

"Obviously time is pressing" on stamping out the debt crisis, though "on many of these issues we feel we're on the right track," Merkel told reporters in Ottawa. Euro-area policy makers "feel committed to do everything we can to maintain the common currency."

BusinessDesk.co.nz

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