US markets closed lower on rate-hike worries

27 Jun 2014 Evaluate

The US markets closed lower on Thursday despite staging a rebound in the afternoon session after an early tumble that was fueled by worries about interest rates. St. Louis Federal Reserve president James Bullard stated that inflation is moving in the right direction toward the central bank’s 2% target, perhaps prompting an interest rate hike as early the first quarter of 2015. Bullard added that inflation is turning around and predicted a spirited debate within the Fed over the timing and trajectory of rate hikes once inflation hits that target threshold. A consensus of Fed forecasts holds that interest rates will likely start moving higher in mid-2015. Bullard dismissed concerns that the Fed’s stimulus policies - low interest rates and massive purchases of US Treasuries and mortgage-backed securities - is inviting excessive risk-taking by investors and prompting asset bubbles, particularly in stock markets. Overall, Bullard expressed optimism for the economy going forward, saying it looks pretty good with unemployment falling faster than predicted.

On the economy front, the number of people who applied for US unemployment benefits fell slightly last week and remained near a post-recession low, indicating that the nation’s low pace of layoffs and an upturn in hiring are likely to continue. Initial jobless claims fell by 2,000 to a seasonally adjusted 312,000 in the seven days ended June 21. The average of new claims over the past month edged up by 2,000 to 314,250. The monthly figure smooths out the jumpiness in the weekly report and offers a better look at underlying trends in a US labor market that has been steadily improving.

Separately, consumers splurged on new cars and trucks in May, but not much else despite another solid month of income gains and inflation continued its steady march higher. The consumer spending climbed 0.2% last month. Spending was even weaker when adjusted for inflation, falling for the second straight month amid a sharp uptick in prices since February. Personal incomes, meanwhile, rose 0.4% to mark the fifth straight gain, The increase in incomes in the first five months of this year is the fastest since the end of 2011 and early 2012.

The Dow Jones Industrial Average lost 21.38 points or 0.13 percent to 16,846.13, the Nasdaq was down 0.71 points or 0.02 percent to 4,379.05 while, the S&P 500 dropped 2.31 points or 0.12 percent at 1,957.22.

Indian ADRs closed mostly in red on Thursday; Infosys was down by 0.68%, ICICI Bank was down 0.32% and Tata Motors was down 0.32%. On the other hand, Dr. Reddy’s Lab was up 0.78% and HDFC Bank was up 0.09%.

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