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US stocks rise after PMI data; euro flat as ECB holds

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Investment Banking Essentials May 15

US stocks rise after PMI data; euro flat as ECB holds

➤ US stocks rise as business activity growth sustained; Tesla shares surge 16%.

Eurozone PMI data signals stagnating growth.

Draghi delivers last policy decision as ECB head.

➤ Sterling slips as UK awaits EU decision on Brexit delay.

U.S. stocks advanced amid a slew of corporate results and U.S. economic data as the European Central Bank maintained rates following eurozone data signaling stagnating growth.

The S&P 500 edged up 0.1% while the Nasdaq 100 index gained 0.7% around 9:50 a.m. ET, after IHS Markit data showed a marginal increase in the rate of growth of business activity, supported by the fastest expansion of manufacturing production for six months.

Growth of service sector activity also picked up, though rates of expansion in both sectors remained subdued.

Electric-car maker Tesla Inc.'s shares surged nearly 16% as the company's profit for the third quarter ended Sept. 30 beat analyst expectations.

The S&P 500 closed yesterday's session up 0.3%, amid a number of earnings reports.

The U.S. third-quarter earnings session has so far revealed better-than-anticipated results for many companies, "giving some relief to investors regarding the negative bearings of a yearlong trade dispute with China," said Ipek Ozkardeskaya, senior analyst at London Capital Group.

The wider Stoxx Europe 600 gained 0.5%, despite a nearly 23% plunge in Nokia Corp. after the Finnish company lowered its 2019 and 2020 EPS outlook.

The German DAX rose 0.5%, amid a 2% gain in Daimler AG, which topped EPS estimates in the third quarter. BASF AG climbed 2.6% as the company confirmed its 2019 outlook amid challenging geopolitical conditions.

The FTSE 100 rallied 1%, though Royal Bank of Scotland Group PLC fell 2.4% after the British banking group swung to a loss in the third quarter from a year-ago profit. France's CAC 40 rose 0.3%.

In Asia, the Shanghai SE Composite was broadly flat, while Hong Kong's Hang Seng and Japan's Nikkei 225 gained 0.9% and 0.6%, respectively. Business activity in Japan contracted in October amid an extended factory slump and a slowdown in the service sector.

In currencies, the euro was flat versus the dollar around 9:40 a.m. ET, as the ECB said its asset purchase program will begin Nov. 1 at a monthly pace of €20 billion.

Earlier in the day, IHS Markit PMI data showed that the eurozone manufacturing downturn continued and the service sector expanded at one of the weakest rates since 2014.

The service sector, which moved to 51.8 in October from 51.6 in September, is keeping GDP growth in positive territory, "but growth could easily tip into the negative territory if some of the downside risks materialize," said Bert Colijn, senior eurozone economist at ING.

This monetary policy decision was the last under Mario Draghi's presidency. The central bank will be led by Christine Lagarde from Nov. 1.

Nordea Markets' Inge Klaver, Anders Svendsen and Tuuli Koivu expect further ECB policy easing in December given subdued economic growth, with another rate cut and an expansion of the asset purchase program.

Sterling was down 0.3% as U.K. Prime Minister Boris Johnson awaited the EU's decision on a Brexit delay.

The Turkish lira declined 0.7% versus the U.S. dollar as the central bank cut its base rate by more than expected.

In other central banking news, the Bank Indonesia delivered its fourth straight rate cut while Sveriges Riksbank left its key rate unchanged but raised the prospect of a hike in December.

In the bond markets, the yield on 10-year Treasurys lost 2 basis points to 1.750%, while that on German Bunds with equal maturity added nearly 1 basis point to negative 0.397%.

In commodities, Brent crude oil rose 0.3% to $61.37 per barrel on the ICE Futures Exchange and gold gained 0.4%.

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The day ahead:

10:30 a.m. ET — Energy Information Administration natural gas report

11 a.m. ET — U.S. Kansas City Fed manufacturing index

4:30 p.m. ET — U.S. Fed balance sheet

4:30 p.m. ET — U.S. money supply

7 p.m. ET — U.S. Fed's John Williams speaks