Positive euro-zone and US data support markets - 25.10.2016

The live dollar index data show the ICE US Dollar Index, a measure of the dollar’s value against a basket of six major currencies, added 0.1% to 98.718. The Dow Jones industrial average gained 0.4% to 18222.89 led by Microsoft and Boeing shares. The S&P 500 closed 0.5% higher settling at 2151.32 led by technology and consumer staples stocks. The Nasdaq composite ended 1% higher at 5309.83. Investor confidence was boosted by news AT&T Inc. agreed to buy Time Warner Inc for $85 billion in cash and stock, with Rockwell Collins Inc. announcing it would pay $6.4 billion for B/E Aerospace Inc. Investors consider the willingness of companies to spend their cash reserves on mergers and acquisitions bullish for equity market. Markets have been trading sideways recently and earnings reports haven’t shown a reversion of the falling earrings trend yet that could support the breakout higher for equity indexes. Economic news on the other hand were positive with the preliminary reading of Markit’s October purchasing managers’ index rising to 53.7 from 51.5. This was deemed as further indication of strengthening economy supporting Fed’s stated plans for hiking rates if incoming data are strong: the chance for a 25 basis point rise in rates at December meeting rose to 68% from 64% the previous day, according to CME Group’s FedWatch tool. Today at 15:00 CET August Case-Shiller Composite-20 House Price Index will be released. The tentative outlook is positive for the dollar. At 16:00 CET October Consumer Confidence index will be published by the Conference Board. The tentative outlook is positive. At the same time Richmond Fed’s Manufacturing Index for October will come out, it is expected to show a decline in manufacturing activity.

The Stoxx Europe 600 closed flat at 344.26. Monte dei Paschi shares rallied 28% as the Italian bank was set to unveil a capital-boosting and new business plan on Monday. Bank stocks rose as JP Morgan recommended investors buy financial stocks on prospects of rising global yields. Germany’s DAX 30 index rose 0.5% to record high this year at 10761.17 with both services and manufacturing PMIs exceeding expectations. France’s CAC 40 gained 0.4% while UK’s FTSE 100 lost 0.5% to 6986.40. Today October Ifo Business Climate, Current Assessment and Expectations Indexes all came in much higher than expected in Germany, indicating improved euro-zone business prospects as perceived by company executives. At 16:30 CET ECB President Draghi speaks in Berlin, and at 16:35 Bank of England Head Carney speaks at House of Lords Economic Committee.