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07-Sep2016

US markets closed higher on Tuesday

The US markets closed higher on Tuesday, with the tech-heavy Nasdaq logging a record close as investors digested a weak services-sector report, which might help convince the Federal Reserve to stay its hand as it considers raising interest rates. Companies in the US that offer services, such as health care, retail goods and financial advice, grew in August at the slowest pace since 2010, a potentially worrisome sign for third-quarter growth unless activity picks up again soon. The Institute for Supply Management stated that its non-manufacturing index fell to 51.4% last month from 55.5% in July. Reading over 50% signal that more businesses are expanding instead of contracting, but it was the weakest showing since February 2010, shortly after the end of the Great Recession. The Federal Reserve's labor-market conditions index slipped back into negative territory in August after a positive reading in July, the seventh negative reading in the past eight months. The Fed's LCMI fell to negative 0.7 in August from a revised reading of 1.3 in July. This compares to a median reading of 2.1 over the entire series going back to August 1976. The index combines 19 labor market indicators and is designed to give a broader view of jobs-market momentum. At the time of the August release, only 14 of the 19 components were available. Five of the 14 initial components deteriorated between July and August, eight were unchanged and one improved.

Meanwhile, San Francisco Fed President John Williams stated that he repeated his call for gradual interest rate hikes, evidently unfazed by a slowdown in US job gains and sluggishness in the services sector. It makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later. Williams added that the economy was in good shape, and he forecast unemployment, now at 4.9 percent, to fall to 4.5 percent in the coming year and inflation to rise to the Fed's 2 percent target in the next year or two. Longer-term, however, Williams made it clear he is far from comfortable with the Fed's current approach to monetary policy. Williams enlightened that targeting low inflation, as the Fed and many other central banks currently do, simply will not work well in a world where economic growth and interest rates are likely to be persistently lower than they were in the era before the Great Recession.

The Dow Jones Industrial Average added 46.16 points or 0.25 percent to 18,538.12, Nasdaq was up 26.01 points or 0.50 percent to 5,275.91, while S&P 500 gained 6.5 points or 0.30 percent to 2,186.48. 

The Indian ADRs closed mostly in green; Tata Motors was up 2.01%, HDFC Bank was up 1.19%, ICICI Bank was up 0.35% and Dr. Reddy's Lab was up 0.33%. On the other hand, Wipro was down 0.05%.



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