US markets closed lower following Fed inaction

16 Jun 2016 Evaluate

The US markets closed lower on Wednesday, stretching a losing streak to five days, as investors weighed the Federal Reserve’s decision to delay rate increases. The committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Fed acknowledged that hiring slowed and that business fixed investment was soft and signaled a slower approach on raising borrowing costs. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months. 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 strengthen. The US central bank lowered its economic growth forecasts for 2016 and 2017 and indicated it would be less aggressive in tightening monetary policy after the end of this year.

On the economy front, industrial production contracted in May, almost erasing a promising expansion in the previous month. Industrial production fell 0.4% in May after a revised 0.6% rise in April. This is the seventh decline in industrial output in the past nine months. The US factory sector has been hit hard by the strong dollar, weak global growth and low commodity prices. US producer prices rose sharply in May as more expensive fuel put upward pressure on inflation, but wholesale costs of most other goods and services were muted. The producer price index climbed 0.4% last month. Yet if food, energy and the volatile retail trade margin categories are stripped out, so-called core producer prices actually fell 0.1%.

On the other hand, manufacturing conditions in the New York region rebounded in June after a weak reading in the prior month. The Empire State manufacturing index for June rose to 6.0 from negative 9.0 in May. Any positive reading indicates improving conditions. The index is still below the 9.6 reading in April. Manufacturing continues to struggle from a weak global economy and low commodity prices.

The Dow Jones Industrial Average was down by 34.65 points or 0.20 percent to 17,640.17, Nasdaq lost 8.62 points or 0.18 percent to 4,834.93, while S&P 500 dropped 3.82 points or 0.18 percent to 2,071.50.

The Indian ADRs closed in green; HDFC Bank was up 1.80%, Tata Motors was up 0.57%, Dr. Reddy’s Lab was up 0.27%, ICICI Bank was up 0.23% and Infosys was up 0.05%.

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