US markets closed higher on Monday

25 Oct 2016 Evaluate

The US markets closed higher on Monday, as gains in the Technology, Consumer Services and Consumer Goods sectors led shares higher. St. Louis Fed President James Bullard stated that the Federal Reserve only needs to nudge up interest rates even though it is very close to its targets of full employment and stable inflation at an annual rate of 2%. The St. Louis Fed believes that a single 25-basis-point increase in the policy rate - from 38 to 63 basis points - is necessary. Bullard added that low rates are likely over the next two or three years because the rate of return on safe assets when adjusted for inflation, has been 200 basis points lower in recent years as compared with the 2001-2007 expansion. In part, rates are low because the US is in a low-productivity-growth regime, which is putting downward pressure on real safe rates of return. Chicago Fed President Charles Evans stated that the Federal Reserve is likely to raise short-term interest rates by three quarter-point moves between now and the end of 2017. Evans added that the Fed should tie the pace of future interest-rate hikes to progress on inflation. The US central bank needs to demonstrate commitment to achieving the inflation target sustainably, symmetrically, and sooner rather than later.

On the economy front, a measure of national economic activity improved in September but its less-volatile, three-month average weakened, according to the Chicago Federal Reserve - one sign that US inflation could be contained over the coming year. The Chicago Fed National Activity Index rose to negative 0.14 in September from negative 0.72 in August as factory production, employment, housing and consumer spending, as well as the business orders that make up the index improved from a particularly weak August. The September reading still shows US economic growth running below its potential. The index’s three-month moving average, which tends to offer a clearer picture of the trend in economic activity than the monthly reading alone, weakened to negative 0.21 in September from negative 0.14 in August. The three-month average fell as deep as negative 0.36 in May, the weakest reading in nearly four years.

Meanwhile, a measure of how fast American manufacturers are growing rebounded in October from a three-month low, potentially getting the fourth quarter off to a good start for the US economy. IHS Markit stated that its flash index rose to 53.2 last month from 51.5 in September, buoyed by the fastest increase in new orders and goods produced in a year. Production has risen five straight months.

The Dow Jones Industrial Average added 77.32 points or 0.43 percent to 18,223.035, Nasdaq gained 52.43 points or 1.00 percent to 5,309.83, while S&P 500 was up 10.17 points or 0.47 percent to 2,151.33.

The Indian ADRs closed mixed; Tata Motors was up 0.56%, ICICI Bank was up 0.40% and Infosys was up 0.12%. On the other hand, Dr. Reddy’s Lab was down 0.25% and HDFC Bank was down 0.19%.

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