US markets closed higher on strong earnings

19 Oct 2016 Evaluate

The US markets closed higher on Tuesday, as the latest round of corporate earnings came in ahead of Wall Street’s estimates, helping to buoy market sentiment. The dollar stepped back from seven-month high against an index of currencies after US consumer prices showed underlying inflation moderated slightly, prompting markets to trim bets on a December Federal Reserve rate hike. A Reuters poll found that the US economy is expected to grow only modestly into next year, keeping inflation low, but the chances the Federal Reserve will raise interest rates in December are now put at 70 percent. Eight years after the financial crisis, the world’s biggest economy has yet to find solid footing. Patches of decent growth are followed by bouts of weakness, suggesting a return to pre-financial-crisis growth rates may be difficult. Through it all, stubbornly weak inflation has encouraged the Fed to maintain ultra-loose monetary policy, although solid employment hints that earnings-led inflation may soon pick up. The poll taken in the past week forecast that annualized quarterly growth accelerated to 2.6 percent in the quarter just ended, up from 1.4 percent in Q2, but will then slow to 2.3 percent in October-December.

On the economy front, more expensive gas and rising housing costs boosted consumer inflation in September by the largest amount in five months, keeping the Federal Reserve on the cusp of raising US interest rates. The consumer price index climbed 0.3% last month. The cost of shelter - rent, new homes and previously owned homes - rose at the fastest pace since May. Energy prices, mainly gas, also posted the biggest increase since early spring. That largely accounted for higher consumer inflation in September. Over the past year, consumer prices have advanced 1.5%, the largest 12-month gain since late 2014. Higher inflation is expected to spur the Federal Reserve to raise interest rates soon, most likely before the end of 2016. The cost of food was unchanged for the third straight month and over the past year grocery prices have fallen 2.2%, the biggest decline since 2009 in the early stages of the current economic recovery. Real or inflation-adjusted hourly wages, meanwhile, fell 0.1% in September. Hourly pay has risen a scant 1% in the past 12 months.

Meanwhile, an index of home builder sentiment slipped two points in October. The National Association of Home Builders’ closely-watched index fell to 63 after surging to its highest in a decade in September. Any reading over 50 signals improvement. NAHB’s sub-gauge of current sales conditions dipped two points to 69, while the measure of sales expectations for the next six months rose one point to 72. The index of buyer traffic declined one point to 46. That gauge hasn’t topped the neutral 50 mark since the height of the housing bubble.

The Dow Jones Industrial Average added 75.54 points or 0.42 percent to 18,161.94, Nasdaq gained 44.02 points or 0.85 percent to 5,243.84, while S&P 500 was up 13.10 points or 0.62 percent to 2,139.60.

The Indian ADRs closed in green; HDFC Bank was up 1.52%, Dr. Reddy’s Lab was up 0.77%, ICICI Bank was up 0.49%, Tata Motors was up 0.30% and Infosys was up 0.21%.

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