US markets gain as Federal Reserve hints for QE3

The US markets edged higher on Friday, to notch a third month of gains that have largely priced in Federal Reserve Chairman Ben S. Bernanke statement that he wouldn’t rule out more stimulus to lower jobless rate which he described it as a grave concern. In much-anticipated speech, delivered two weeks before the next Federal Open Market Committee meeting, the Fed chief reiterated prior comments that the central bank is ready to act, as needed. Bernanke’s 24-page speech at the Kansas City symposium made the case for further monetary easing and concluded that the central bank’s non-traditional policy tools such as bond purchases have been effective in boosting growth and improving financial conditions. He stated that declines in the unemployment rate would continue only if growth picks up above its longer term trend. Unless economic growth picks up more rapidly than it has recently, the unemployment rate would likely remain elevated, Bernanke stated. Bernanke left the door for a third round of quantitative easing wide open and the chairman’s remarks about unemployment signaled the Fed is likely to act if the jobless rate increases even slightly. The rate setting committee is scheduled to meet for two days ending on September 13 and many Fed observers expect the next measures to be announced then.

Besides, the US economic reports came good, factory orders in July rose the most in a year, posting the biggest increase since July 2011 and rising for the second time in three months. The Commerce Department stated that new orders for manufactured goods rose 2.8 percent during July. Also, the confidence among US consumers in August rose more than projected to the highest level in three months, reinforcing signs the world's largest economy is improving. The Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 74.3 from 72.3 the prior month. The gauge was projected to rise to 73.6. However, the Chicago Purchasing Managers’ Index slipped to 53 in August, down from 53.7 in July, according to economic consulting firm Kingsbury International.

In Europe, the European Commission plans to give the European Central Bank supervisory powers over the euro-area banking sector. Besides, Euro area unemployment for July was unchanged from June, holding at a record-breaking 11.3%, according to the European Union's statistic office. At over 25%, Spain had the highest jobless rate in the region. The unemployment rate for EU27 nations was 10.4% in July. Separately, Euro-zone inflation climbed to 2.6% in August from 2.4% in July, flash estimate issued by Eurostat showed. The central bank aims to keep inflation below but close to, 2% over the medium term. The final report for August is due on September 14. Also, Germany’s retail sales decreased 0.9% from a month ago in July, from the 0.5% rise in June, data released by the Federal Statistics Office showed. Annually, retail sales fell 1% in July, following the 3.7% gain in June.

The Dow Jones industrial average gained 90.13 points, or 0.69 percent, to 13,090.80. The S&P 500 Index gained 7.10 points or 0.51%, to 1,406.58, while the Nasdaq Composite was up by 18.25 points, or 0.60 percent, to 3,066.97.

The Indian ADRs closed mixed on Friday, Dr. Reddy’s Lab was up 0.15%, Tata Motors was up 0.13% and Infosys was up 0.12%. On the other hand, HDFC Bank was down by 0.50% and Tata Communications was down 0.27%.