US markets drop on global growth concern

08 Oct 2014 Evaluate

The US markets dropped on Tuesday, driving major averages to their lowest levels in months, after the International Monetary Fund cut it growth forecast and warned of frothy equities amid signs of slowing growth in Europe. The IMF also warned about the risks of rising geopolitical tensions and a financial-market correction. According to the IMF report, a sustained period of policy interest rates near zero in advanced economies has raised the risk that some financial markets may be overheating. Investors have also been concerned that central bank may raise interest rates sooner than anticipated as the US economy gains strength. The Federal Open Market Committee will release minutes from its September 16-17 meeting tomorrow. New York Fed President William C. Dudley stated that forecasts for the Fed to raise interest rates in mid-2015 are reasonable as policy makers wait for unemployment to fall further and inflation to rise. Dudley added that a strengthening dollar, weak foreign demand and strong domestic energy production are all holding down inflation, which remains below the Fed’s 2% target.

On the economy front, home prices eked out a slim gain in August, restraining annual growth to the slowest pace in almost two years. In August US home prices rose 0.3% from the prior month, with nine states, included energy-powered Texas and North Dakota, hitting record highs. Looking at longer-term trends, year-over-year home price growth continued to slow down in August, pointing to a more balanced market. Consumer borrowing in the US increased in August at the slowest pace in nine months as credit-card use declined. The $13.5 billion gain in credit followed a $21.6 billion advance in July that was smaller than previously estimated, a report from the Federal Reserve in Washington showed. Non-revolving loans, which include borrowing for autos and college tuition, climbed $13.7 billion, the smallest increase since January.

Separately, job openings in the US climbed to a 13-year high in August as employers gained confidence about the outlook for demand in the world’s biggest economy. The number of positions waiting to be filled rose to 4.84 million in August, the most since January 2001, from a revised 4.61 million the prior month. The upswing in openings adds to signs of sustained progress in the labour market.

Dow Jones Industrial Average lost 272.52 points or 1.60 percent to 16,719.39, Nasdaq was down by 69.60 points or 1.56 percent to 4,385.20, while S&P 500 ended lower by 29.72 points or 1.51 percent to 1,935.10.

The Indian ADRs closed lower on Tuesday; Dr. Reddy’s Lab down by 1.34%, Infosys was down by 0.74%, Tata Motors was down by 0.45%, ICICI Bank was down 0.33% and HDFC Bank was down by 0.30%.

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