US markets closed higher; S&P post biggest 3-day gain since August

18 Feb 2016 Evaluate

The US markets closed higher on Wednesday, allowing the benchmark S&P 500 to post its biggest three-day gain since August. Solid gains came as the minutes from the Federal Reserve’s January policy meeting suggested that policy makers are inclined to pause the tightening process due to recent market turmoil. The majority of Fed officials agreed that the best policy would be to wait for additional information about the strength of the economy before making any further attempts to raise interest rates in 2016. The minutes of the Federal Open Market Committee meeting that ended January 27 reported that several participants noted that monetary policy was less well positioned to respond effectively to shocks that reduce inflation or real activity than to upside shocks, and that waiting for additional information regarding the underlying strength of economic activity and prospects for inflation before taking the next step to reduce policy accommodation would be prudent. Only a small minority of Federal Reserve officials were willing to look past the stock market weakness that emerged after the US central bank raised interest rates for the first time in almost a decade, arguing that it could be the result of bringing equity valuations more in line with historical norms. A few doves, who are voting member of the Fed policy committee, were forceful about what it would take to support another rate hike. They stressed they wanted to see direct evidence that inflation was rising toward 2% before they would back another rate increase.

On the economy front, wholesale prices picked up more than expected in January, a possible sign that the global glut in commodities and energy may be abating. The producer price index rose 0.1% in January, a much stronger reading than the 0.2% decline expected. The core price index, which strips out volatile categories like food and energy, was up 0.4% for the month and 0.6% compared to a year ago. Excluding food, energy, and trade services, core PPI personal consumption inflation increased a very large 0.5% monthly rise, bringing the year-over-year rise to 1.6%.

Meanwhile, US industrial production rose in January after three straight months of declines, buoyed by a strong utilities index and growing manufacturing sector. Industrial output increased 0.9 percent after a downwardly revised 0.7 percent decline in December. The US central bank had previously reported a 0.4 percent drop for December. The Fed views capacity use as a leading indicator in deciding how much further the economy can grow before sparking higher inflation.

The Dow Jones Industrial Average added 257.42 points or 1.59 percent to 16,453.83, the Nasdaq was up 98.11 points or 2.21 percent to 4,534.07 while, the S&P 500 gained by 31.24 points or 1.65 percent to 1,926.82.

The Indian ADRs closed mostly in green; Dr. Reddy’s Lab was up 1.89%, HDFC Bank was up 1.17%, Tata Motors was up 0.83% and Wipro was up 0.18%. On the other hand, ICICI Bank was down by 0.08%.

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