While you were sleeping: Solid US retail sales, stocks steady

A report showing better than expected US retail sales underpinned bets the Federal Reserve will hike interest rates at least once more this year, bolstering the greenback.

A Commerce Department report showed US retail sales climbed 0.6% in July, the largest increase this year and beating economists' expectations.

"American shoppers flocked to the malls in July, suggesting consumers are well-positioned to propel the economy forward in the second half of the year," Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, told Reuters.

"It should tamp down chatter about the Fed delaying rate hikes until next year."

Investors will scrutinise Wednesday's release of the minutes from the Fed's July meeting for further clues.

Wall Street remained cautious amid political turmoil. At the close of trading in New York, the Dow Jones Industrial Average rose 5.28 points, or 0.02%, to 21,998.99. However, the Nasdaq Composite Index slipped 0.1% to 6333.01 and the Standard & Poor's 500 Index eased 0.05% to 2464.61.

"Once you have a good lift in the market like yesterday [Monday], it's going to take a little more confidence that it can be sustained, especially at the valuations we're at," Omar Aguilar, chief investment officer for equities at Charles Schwab Investment Management in San Francisco, told Reuters.

"We need to have a little more calm down on the political front and geopolitical side."

'Market overvalued'
Bank of America Merrill Lynch's monthly fund manager poll showed 46%, a record high, thought equity markets were overvalued.

"Investors' expectations of corporate profits have taken an ominous turn this year," Michael Hartnett, BofA Merrill Lynch Global Research chief investment strategist, noted, "which is a warning sign for equities over bonds, high yield over investment grade, and cyclical sectors over defensive ones.

"Further deterioration is likely to cause risk-off trades."

In the Dow, American Express and Apple rose 1.7% and 1.1% respectively, outweighing slides in Home Depot and Nike, down 3.1% and 2.1% respectively.

Wall Street's fear gauge the CBOE Volatility Index or the VIX eased 3.2% to 11.93.

In Europe, the Stoxx 600 Index finished the day with a 0.1% rise from the previous close. Germany's DAX Index increased 0.1%, while the UK's FTSE 100 Index rose 0.4%, as did France's CAC 40 Index.

Shares of Danone rose after Bloomberg reported, citing people familiar with the matter, that Corvex Management has built a stake in the French yoghurt maker because it views the company as significantly undervalued.

The New York-based activist fund run by Keith Meister owns shares in Danone worth about $US400 million, said the people, who asked not to be identified because the investment hasn't been publicly disclosed, according to Bloomberg.

The stock rose as much as 2.9% in early Paris trading, leading gains in France's benchmark CAC 40 Index, before ending the day with an increase of 1% from the previous close.

(BusinessDesk)