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While you were sleeping: Lift from US retail sales

Wednesday 16th November 2011

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A report showing better-than-expected US retail sales helped, in part, offset lingering concerns about the impact of Europe’s raging fiscal crisis on the recovery of the world’s largest economy.

Stocks were holding onto gains in afternoon trading in New York, after recovering from early losses. The Dow Jones Industrial Average rose 0.31 percent, the Standard & Poor's 500 Index gained 0.37 percent and the Nasdaq Composite Index advanced 0.72 percent.

Confirming a recent trend, US retail sales rose in October and a gauge of manufacturing in New York state indicated expansion this month for the first time since May.

However, Europe’s debt crisis continues to remain a drag on the global economy. Bond yields surged yet again on Italian government bonds.

"The economic numbers in the US have improved [but] everything in Europe is kind of a matter of uncertainty, and the markets never like uncertainty,” Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management in Champaign, Illinois, told Reuters.

As a sign of the mixed recovery in the US, Wal-Mart today posted earnings that fell short of expectations. The stock dropped 2.5 percent. In contrast, Home Depot raised its fiscal-year outlook for the third time in six months, according to Reuters, though it wasn’t enough to boost the stock, which was last 0.4 percent lower on the day.

US retail sales rose 0.5 percent last month, helped by the biggest jump in electronics purchases in two years, according to Commerce Department figures. That surpassed economists' expectations for a 0.3 percent increase.

Wal-Mart chief Mike Duke said its US customers were still worried about jobs and that only one in 10 mothers taking part in its surveys viewed the economy as "good".

Goldman Sachs, meanwhile, begs to differ and is preparing for a faster global economic rebound than most forecasters expect, Bloomberg News reported, citing comments by Chairman and Chief Executive Officer Lloyd Blankfein at an investor conference in New York hosted by Bank of America’s Merrill Lynch unit.

“I don’t think that we can conclude that this slowdown is secular rather than cyclical change,” Blankfein said. “The world will snap back and it will be a surprise and it will be faster than people think.”

In Europe, the Stoxx 600 Index closed with a 0.6 percent decline for the day.

In Italy, Mario Monti struggled to get political parties to help form his new Cabinet while shares of Finmeccanica, the country’s largest defense company, said it would sell 1 billion euros in assets after unexpectedly forecasting a loss for this year. The stock tumbled 20 percent.

In a clear sign of concern about the European Union’s third-largest economy, investors drove the yield on Italy’s 10-year bonds into the perceived danger zone above 7 percent. The country has to refinance about 200 billion euros of bonds by the end of April, according to Reuters.

In Spain and France, borrowing costs are on the rise, too, as investors remain worried these countries could be next in line to crumble under their enormous debt load as have Italy, Greece, Portugal and Ireland so far.

The crisis is fraying nerves everywhere, but particularly in Germany. A report today showed the country’s investor confidence last month dropped to the lowest level since October 2008.

Data showing the EU economy expanded 0.2 percent in the third quarter from the second did little to change economists’ expectations that the euro zone is probably headed for a recession.


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