US consumer boosts rally

Wall Street moved to fresh record highs after US reports showing a larger-than-expected increase in retail sales. Photo / AP

Wall Street moved to fresh record highs after US reports showing a larger-than-expected increase in retail sales while consumer prices rising at the fastest clip in nearly four years underpinned the outlook for growth in the economy and corporate profits.

A Commerce Department report showed retail sales rose 0.4 per cent in January, following an upwardly revised pace of 1.0 per cent in December. Separately, a Labor Department report showed the consumer price index climbed 0.6 percent last month, following a 0.3 per cent increase in December.

"The US economy has quite a bit of momentum as the year began," Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, told Reuters. "This morning's reports add a little more impetus for the Fed to move this quarter. Still not our call but it is becoming very interesting."

Federal Reserve Chair Janet Yellen, in testimony to Congress on Tuesday and again on Wednesday, signalled the central bank will raise interest rates in the coming months.

Traders are pricing in a 59 per cent chance the Fed will raises rates by May and 78 per cent by June, according to futures prices, Bloomberg reported.

"Inflation is getting closer to the Fed's goal," Scott Brown, St. Petersburg, Florida-based chief economist for Raymond James Financial, told Bloomberg. "This is a green light for the Fed to raise rates in coming months."

In 1.21pm trading in New York, the Dow Jones Industrial Average advanced 0.4 per cent, while the Nasdaq Composite Index rose 0.3 per cent. In 1.06pm trading, the Standard & Poor's 500 Index gained 0.3 per cent.

The Dow climbed to a record 20,604.52, while the S&P 500 touched a high of 2,344.68, and the Nasdaq ascended to a record 5,804.48.

Advances in shares of Procter & Gamble and those of Pfizer, recently up 3 per cent and 1.6 per cent respectively, led the gains in the Dow.

Bucking the trend, shares of PepsiCo fell after the company offered an outlook that fell short of expectations as Chief Executive Officer Indra Nooyi warned of "continued macroeconomic challenges."

The company said it expects core earnings of US$5.09 per share in 2017. While that's an increase from US$4.85 per share in 2016, it fell short of analysts' estimates for US$5.15.

Shares of PepsiCo traded 0.3 per cent weaker at US$106.57 as of 12.27pm in New York. Earlier in the day the stock had risen as high as US$107.25 and dropped as low as US$104.77.

In Europe, the Stoxx 600 Index finished the day with a 0.3 per cent gain from the previous close. Germany's DAX Index added 0.2 per cent, the UK's FTSE 100 Index rose 0.5 per cent, and France's CAC 40 Index increased 0.6 per cent.

Shares of France's Danone closed 0.2 per cent weaker in Paris. Danone said it is aiming to cut costs by 1 billion euros (US$1.1 billion) by 2020 as the world's top yoghurt maker predicted profit growth to ease this year as "economic conditions will remain particularly volatile and uncertain overall."

"The challenges we faced [in 2016], including a slower turnaround of dairy in Europe and major market volatility, are a clear case to step up in our ability to seize consumer opportunities and improve our efficiency," CEO Emmanuel Faber said in the statement.

Danone said it's targeting earnings per share growth of more than 5 per cent for 2017. Last year its EPS increased 9.3 per cent.

The company said it will review its annual targets following the closing of its US$10 billion WhiteWave Foods acquisition, expected in the first quarter.