The big picture

Confidence continues to build on the back of stability

“The good news is things are stabilizing, there are encouraging signs, there is a brighter future ahead,” federal Finance Minister Jim Flaherty said, but he cautioned recovery will be gradual. President Barack Obama urged Americans to be patient with his economic recovery plan. The plan “was not designed to work in four months,” Obama said. “It was designed to work over two years.” U.S. Treasury Secretary Timothy Geithner said he sees signs of confidence returning to the U.S. financial sector and feels the economy has improved faster than expected. Industrial production in June shrank less than forecast, signalling the sector is on the verge of stabilizing. Meanwhile, new construction of homes and apartments picked up to the fastest pace in seven months in June, another indication that the U.S. housing slump may be levelling out.

China’s economy grew by a surprisingly strong 7.9% in the second quarter, fuelled by a massive economic stimulus package and aggressive bank lending. Japan’s central bank held its key interest rate steady at 0.1% and extended its emergency measures to the end of 2009, as it downgraded its 12-month outlook to 1.0% growth from 1.2%.

The markets

Stocks rally on earnings optimism and donuts take Manhattan

Stock markets rallied this week on the back of better-than-expected earnings from U.S. firms such as Intel and Goldman Sachs. JPMorgan Chase also beat analysts’ estimates with a $2.7-billion second-quarter profit, 36% higher than a year ago. General Electric, a bellwether of the world economy, beat Wall Street’s earnings expectations but posted a 17% drop in revenues. In addition, the Canadian dollar shot up to 89 cents U.S., drawing strength from the improved earnings outlook and rising gold prices.

Tim Hortons is opening 12 stores in New York City, and is on track to turn a profit at its 500+ U.S. stores this year, even as it goes head-to-head against McDonald’s new McCafé beverage line. Meanwhile, with retail sales down 9.4% in June versus last year, stores in the U.S. are taking novel approaches to drive sales – Sears Holding Corp., which runs both Sears and Kmart, has already launched an online Christmas promotion. Japanese beverage leaders Kirin Holdings Co. and Suntory Holdings are in merger talks; combined, the companies would control 50% of the Japanese beer market. Bailout talks between the U.S. Treasury and major business lender CIT Group have collapsed, potentially driving the company into bankruptcy.