US markets closed higher as rate hike jitters fade

30 Aug 2016 Evaluate

The US markets closed higher on Monday, with the Dow industrials and the S&P 500 index ending a three-session losing streak, as investors calibrated prospects for Federal Reserve rate increases in 2016. The chance of a rate rise delivered a boost to bank shares, which tend to benefit the most in the face of higher interest rates. A closely watched measure of inflation increased, with the so-called PCE index, the Fed’s preferred gauge, showing consumer prices climbed closer to the central bank’s 2% target in July. The focus is now on this Friday’s nonfarm-payroll data for August. Federal Reserve Vice Chairman Stanley Fischer stated that the decision on whether to hike interest rates should be looking forward, not backward - and the next jobs report will figure into the process. The US economy has strengthened, with strong jobs data in the last three months. St. Louis Fed President James Bullard stated that the Federal Reserve’s forecast of gradual rate hikes is damaging the economy and the central bank’s credibility. Bullard added that he thought it would be best to raise interest rates after there had been some good news about the economy. While there has been two good jobs reports, year-over-year GDP growth rate is very low. The St. Louis Fed head said he was trying to break down the Fed’s on-the-cusp-of-200-basis- points story for interest rates over the same forecast horizon.

On the economy front, Americans increased spending by 0.3% in July, buying more new cars and trucks and devoting more money to utilities such as cooling their homes. Household spending has picked up since the early spring. That’s kept the US economy on stable footing and offset weaker businesses investment. Since incomes rose faster than spending, the personal savings rate climbed to 5.7% from 5.5%. Inflation as measured by the PCE index was unchanged in July. The so-called core rate of inflation that strips out the volatile food and energy categories rose 0.1%. The PCE index, the Federal Reserve’s preferred inflation barometer, increased 0.8% in the 12 months ended in July, a tick lower than in June. The annual rate of core inflation was flat at 1.6%.

The Dow Jones Industrial Average added 107.59 points or 0.58 percent to 18,502.99, Nasdaq was up 13.41 points or 0.26 percent to 5,232.33, while S&P 500 gained 11.34 points or 0.52 percent to 2,180.38.

The Indian ADRs closed mixed; Tata Motors was up 1.04%, ICICI Bank was up 0.18% and Dr. Reddy’s Lab was up 0.10%. On the other hand, Wipro was down 0.18% and Infosys was down 0.15%.

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