US markets closed lower reacting to FOMC minutes

28 Jan 2016 Evaluate

The US markets closed lower on Wednesday, after the Federal Reserve left the door open to a March rate increase despite acknowledging that economic growth slowed since its last meeting in December. US crude oil futures which were lower in the morning rebounded to settle 2.7% higher at $32.33 a barrel after news reports that Russia and OPEC discussed production cuts. Oil prices have been extremely volatile over the past few months, setting the tone in stock and bond markets. However, on Wednesday, for the first time since December, a rally in oil prices did not translate into a rally in stocks. The Federal Open Market Committee left interest rates unchanged at its January 2016 meeting. The Fed stated in cautious tone that inflation is expected to remain low in the near term, that some saw as a suggestion the central bank won’t be quick to raise interest rates again. But others saw the Fed refusing to rule out a move as early as March after paying lip service to increased global market turmoil and reiterating that it saw downside pressure on inflation as unlikely to last. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

On the economy front, sales of new homes rebounded handily in December, a signal of continued strength in the housing market. Sales ran at an annual pace of 544,000, the highest since February. That represented a 10.8% increase over a slightly upwardly revised November pace of 491,000. New home sales are volatile and often revised, but the trend has been generally up. December’s number was 9.9% higher than the same period a year ago, and there were 501,000 new homes sold during 2015, a 14.5% increase over 2014. Still, new-home sales are a fraction of what they used to be, even before the housing bubble began to swell.

The Dow Jones Industrial Average lost 222.77 points or 1.38 percent to 15,944.46, the Nasdaq was down 99.50 points or 2.18 percent to 4,468.17 while the S&P 500 dropped 20.68 points or 1.09 percent to 1,882.95.

The Indian ADRs closed mixed; Tata Motors was down 0.49%, Infosys was down by 0.10% and ICICI Bank was down by 0.04%. On the other hand, HDFC Bank was up 1.14% and Dr. Reddy’s Lab was up 0.53%.

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