US markets closed lower spooked by talks of early rate hike

18 May 2016 Evaluate

The US market slipped on Tuesday, after Federal Reserve officials hinted that interest rates could be raised as early as June. Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams stated that the Fed’s decision on whether to raise rates at the June 14-15 meeting hinges on the data. Lockhart added that June certainly could be a meeting at which action could be taken. The Atlanta Fed president stated that markets may be more pessimistic than certainly I am at this stage. In separate remarks later, Robert Kaplan, the president of the Dallas Fed, stated that the US central bank should raise rates in the not-too-distant future. The market could see more dramatic moves on Wednesday with the release of the April Federal Open Market Committee meeting minutes.

On the economy front, industrial production in April grew at the fastest monthly rate in 17 months, bouncing back after two straight monthly declines as auto production rebounded and cooler temperatures boosted utility output. The industrial production grew 0.7% in April. Revisions to prior months were largely offsetting. March’s decline was revised to a steeper 0.9% fall from an initially reported 0.6% drop, but February’s output was revised up to a 0.2% decline from the previous estimate of 0.6% decline. Capacity utilization rose to 75.4% in April from 74.9% in the prior month. Construction on new houses rebounded in April after a sharp dip in the prior month, but a slowdown in building permits suggest work on new properties could taper off from last year’s double-digit pace. Housing starts climbed 6.6% last month to an annual pace of 1.17 million. In March, starts were revised to a 1.1 million rate. Permits for new construction, a sign of future demand, might offer another clue. They rose slightly to an annual rate of 1.12 million in April, but they are running 5.3% below year-ago levels.

Meanwhile, the prices Americans pay for goods and services saw the fastest increase in April in more than three years, led by the higher cost of gas and rent. The consumer price index shot up a seasonally adjusted 0.4% last month, the biggest gain since February 2013. More than half of the rise in consumer inflation stemmed from a recent bump in the cost of gasoline. Rent was another major contributor, accounting for about one-fourth of the increase. Although price pressures are on the rise, overall inflation is still relatively tame. The CPI has risen just 1.1% in the past 12 months, up from 0.9% in March. The Federal Reserve wants inflation - as measured by a related series known as the PCE price index - to rise to a 2% level that it considers healthier for the economy.

The Dow Jones Industrial Average lost 180.73 points or 1.02 percent to 17,529.98, Nasdaq dropped 59.73 points or 1.25 percent to 4,715.73, while S&P 500 was down by 19.45 points or 0.94 percent to 2,047.21.

The Indian ADRs closed in red; HDFC Bank was down 1.10%, Tata Motors was down 1.07%, Infosys was down 0.44%, Wipro was down by 0.14% and Dr. Reddy’s Lab was down 0.08%.

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