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U.S. retail sales disappoint It appears Americans still aren't spending in any meaningful way. Retail sales in the United States rose 0.4 per cent in July, and though that was the first increase in three months it was driven largely by sales of cars and gasoline. Excluding autos, sales rose 0.2 per cent, shy of what economists were expecting. And when you take out both autos and gas, sales fell 0.1 per cent. Of the 12 categories measured by the U.S. Commerce Department, sales were down in eight. The retail numbers are a key gauge of the U.S. recovery given the clout of consumer spending in the overall economy.
"Eat, pray, love? How about nibble, pray and gas up?" said BMO Nesbitt Burns senior economist Jennifer Lee. "Not a great way to finish up an equally not great week ... Given [Federal Reserve Chairman Ben] Bernanke's 'unusual uncertainty' comment, Mastercard's CEO remark that he sees 'conflicting signals' about the economic recovery, and Cisco's CEO saying he sees 'mixed signals' about the economy there is only one thing that's for sure ... economic momentum has slowed."
Toronto-Dominion Bank economist Alistair Bentley had a slightly more optimistic take: "Today's result adds credence to our view that consumer spending is gradually improving and that a continuing - albeit tepid - recovery is underway across the U.S. economy ... All told, given the outlook for job growth and continued financial market volatility, consumers are likely to remain cautious in their purchase behavior over the remainder of this year."
The retail report came as J.C. Penney Co. , the third-largest department chain in the United States, lowered its outlook for this year, warning of an uncertain projection for spending.
Germany drives European growth Europe's economy rebounded at a solid pace in the second quarter of the year, but its headline growth rate was driven by Germany and masks the disparity across the continent. The economies of both the 27-nation EU and the smaller euro zone, whose 16 members share the common currency, expanded by 1 per cent, compared to the first quarter, the Eurostat statistical agency said today. On an annualized basis, the growth rate was 3.9 per cent. In Germany alone, gross domestic product surged by 2.2 per cent - that's about 9 per cent annualized and the strongest pace since reunification - as Europe's biggest economy and main exporter solidified its position as the continent's growth engine.
"Superman is wearing black, red and gold this year, Germany's national colours," said economist Carsten Brzeski of ING Group. "But at some stage he'll become Clark Kent again. The economy can't keep growing at this rate."
The Eurostat report highlights the diverse nature of Europe's recovery, a problem for the European Central Bank, the monetary authority for the 16 countries in the euro zone. While Germany surged, others countries that have been at the heart of Europe's debt crisis, such as Greece, Spain, Hungary, Ireland and Portugal, lagged.
"The optimism from the German report was short-lived, as markets focused on softer growth elsewhere which widened peripheral Europe's sovereign debt spreads," said BMO Nesbitt Burns economist Benjamin Reitzes.
Energy pushes up consumer prices in U.S. U.S. consumer prices jumped last month for the first time in several months, though the pace was driven by energy prices and is not a sign of inflationary pressures suddenly appearing on the scene. While inflation rose to 0.3 per cent in July over June, the so-called core rate that excludes volatile prices was just 0.1 per cent. That suggests that inflation is not a problem in the United States - not that anybody thought that, as fears now centre on deflation - and leaves the Federal Reserve free to fight a stalling recovery.
Europe's showing fails to boost markets The numbers from Europe failed to give global stock markets a lift, however. The second quarter has, of course, passed, and investors are looking ahead to a feared slowdown in the global recovery rather than in the rearview mirror. These concerns, particularly focused on the United States, are behind the market turmoil. In Asia today, the Nikkei 225 gained 0.4 per cent, while Hong Kong's Hang Seng dipped 0.2 per cent. European markets were also faring poorly, with London's FTSE 100 dipping 0.1 per cent and the Paris CAC-40 down 0.3 per cent. Even Germany couldn't find momentum as the DAX slipped 0.6 per cent.
In North America, Dow Jones industrial average and S&P 500 futures were also down.
Magma stirs controversy in Iceland The proposed takeover of an Icelandic geothermal company by Vancouver's Magma Energy Corp. is stirring up a hornet's nest in the island nation, drawing widespread opposition from critics of the deal, including pop star Björk. The opponents, who also include members of a party that is part of a coalition government, have managed to prompt an investigation into the proposal, in turn sparking warnings from business that the struggling economy could scare away foreign investors.
Magma, a geothermal power company, has been acquiring stakes in HS Orka through a Swedish subsidiary, Bloomberg News reports, and wants to take more. Iceland, which blocks the acquisition of majority stakes in its energy companies by those outside Europe, has seen several takeovers of companies by foreigners.
In late July, the government said it would strike up a committee to study foreign investment in the country's energy companies, after members of the Left Greens, vowed to pull their support for the coalition. The campaign against Magma has been growing, including the likes of Björk, who, according to Bloomberg, has called for an "open discussion and reconsideration concerning the sale of access to our natural resources."
Björk aside, Iceland doesn't have a lot going for it now, having been the poster child for the meltdown as its financial system collapsed. Its economy is a mess and foreign investment in the country has plunged. Bjorn Thor Arnarson, the chief economist at the Icelandic Chamber of Commerce, told Bloomberg that "one can't be blamed for wondering whether many investors will back away from their investments in the years to come because they are scared that politicians will meddle."
Magma said in a statement after the government's decision that each of its deals to date were reviewed and allowed, and it is "confident that the proposed transaction is in accordance with the laws of Iceland."
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