US markets closed lower as rate hikes loom

25 Mar 2015 Evaluate

The US market closed lower on Tuesday, as investors grappled with a batch of better-than-expected economic reports that suggest a rate hike may be nearing. In a sign that the core of the Federal Reserve is turning hawkish, San Francisco Fed President John Williams laid out the case for the US central bank moving sooner rather than later to hike rates. Although Williams has been careful over the past few weeks to stress that he only wants to begin a discussion of rate hikes at the June meeting, he laid out the case for moving sooner rather than waiting for inflation to push up close to the central bank’s 2% target. St. Louis Federal Reserve President James Bullard is concerned about the mismatch between the markets and the central bank’s expectations for the first interest-rate increase, warning it could end with a violent reaction in the financial market. Bullard, one of the Fed’s most hawkish members, stressed that the central bank’s zero-rate interest policy is no longer appropriate and that a rate hike this summer wouldn’t strangle the US economic recovery.

On the economy front, the flash reading of the Markit manufacturing purchasing managers index unexpectedly rose in March to 55.3 from 55.1 in February, to mark the highest reading since October. New orders also increased in March at the fastest pace in five months despite slower export sales. The great deflation of 2014 caused by the plunge in oil appears to have run its course; US consumer prices rose in February for the first time in four months. The consumer price index climbed by a seasonally adjusted 0.2% last month. Gasoline prices have rebounded in early 2015, with the cost of oil stabilizing at around $50 a barrel after selling for more than $100 last summer. If food and energy are excluded, so-called core consumer inflation has risen at a 1.7% rate over the past 12 months.

Meanwhile, US house prices rose a seasonally adjusted 0.3% in January, the Federal Housing Finance Agency stated. The index, calculated from mortgages sold to or guaranteed by Fannie Mae and Freddie Mac, is up 5.1% from January 2014 levels. Sales of new homes in the US surged in February, and home buying in the first two months of 2015 rose to the highest level in seven years despite heavy snow and bouts of extreme cold in some parts of the nation. The pace of new home sales climbed 7.8% last month to an annual rate of 539,000 from an upwardly revised 500,000 in January.

The Dow Jones Industrial Average lost 104.90 points or 0.58 percent to 18,011.14, Nasdaq was down by 16.24 points or 0.32 percent to 4,994.73 while, S&P 500 was lower by 12.92 points or 0.61 percent to 2,091.50.

The Indian ADRs closed mostly in red on Tuesday; Tata Motors was down 1.15%, HDFC Bank was down 0.38%, Infosys was down 0.27% and Wipro was down by 0.18%. On the other hand, Dr. Reddy’s Lab was up 0.93%.

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