Wednesday 25th May 2016
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Equities on both sides of the Atlantic moved higher, as did the US dollar, as investors warmed to the idea that the US Federal Reserve might raise interest rates as early as June, while Toll Brothers’ earnings and new home sales exceeded estimates.
A Commerce Department report showed that US new home sales soared 16.6 percent to a seasonally adjusted annual rate of 619,000 units, the highest level in more than eight years, accelerating from an upwardly revised sales rate of 531,000 units in March.
In other evidence of strength in the US housing market, shares of Toll Brothers jumped, trading 7.9 percent higher as of 1pm in New York, after the top US builder of luxury homes posted quarterly results that beat expectations.
"We continue to believe the drivers are in place to sustain the current housing market's slow but steady growth," Robert Toll, executive chairman, said in a statement. "Interest rates remain low, the job picture continues to improve, home equity values are rising, supply remains constrained and the industry is still not building enough homes to meet the demand that current demographics imply are needed."
Wall Street advanced. In 12.45pm New York trading, the Dow Jones Industrial Average rallied 1.2 percent, while the Nasdaq Composite Index climbed 1.7 percent. In 12.31pm trading, the Standard & Poor’s 500 Index rose 1.3 percent.
“This is the way these markets seem to run now with these quick reversals,” John Stoltzfus, chief market strategist at Oppenheimer & Co in New York, told Bloomberg. “If the Fed is raising rates because the economy is doing better, that looks like a good thing and it seems the market is recognising that. The jump today in new-home sales, it’s a volatile figure, but that’s a big deal.”
Gains in shares of Microsoft and those of Intel, trading 2.8 percent and 2.7 percent higher respectively, led the Dow higher. Shares of Boeing bucked the trend, sliding 0.6 percent for the only decline in the Dow in early afternoon trading.
Investors will scrutinise comments from Fed Chair Janet Yellen who is scheduled to speak in Massachusetts on Friday amid a chorus of central bank comments suggesting a rate hike might happen sooner than later.
"I think investors are becoming more comfortable with an early rate hike because even if the Fed does raise rates in June, it will remain extremely accommodative," Art Hogan, chief market strategist at Wunderlich Securities in New York, told Reuters. ”I think the Fed wants to recalibrate the market's expectations regarding a hike."
Monsanto said it rejected Bayer's US$62 billion takeover proposal as “incomplete and financially inadequate,” adding that it “is open to continued and constructive conversations to assess whether a transaction in the best interest of Monsanto share owners can be achieved.”
“We believe in the substantial benefits an integrated strategy could provide to growers and broader society, and we have long respected Bayer’s business,” Hugh Grant, Monsanto CEO, said in a statement. “However, the current proposal significantly undervalues our company and also does not adequately address or provide reassurance for some of the potential financing and regulatory execution risks related to the acquisition.”
Monsanto shares traded 1.9 percent higher at US$108 as of 1.16pm in New York, still shy of the now-rejected US$122-a-share offer from Bayer. Monsanto’s stock had been halted briefly pending the announcement. Shares of Bayer closed 4.4 percent stronger in Frankfurt.
In Europe, the Stoxx 600 Index finished the day with a 2.3 percent advance from the previous close.
The UK’s FTSE 100 index rose 1.4 percent, while Germany’s DAX index jumped 2.2 percent and France’s CAC 40 index added 2.5 percent.
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