US markets closed mostly lower on weak manufacturing data

02 Aug 2016 Evaluate

The US markets closed mostly lower on Monday, as crude-oil futures returned to bear-market territory and weaker-than-expected manufacturing data raised doubts about the strength of the economy. The losses for crude snowballed, with the US oil benchmark at one point trading below the key $40 level amid worries about a supply glut and subdued demand. Corporate quarterly results will continue to feature prominently this week even as the season winds down. So far, about two-thirds of S&P 500 companies have announced quarterly results thus far, with 71% beating on earnings and 57% reporting revenue above estimates. On the economy front, US manufacturers grew at a modestly slower rate in July but are still expanding at a pace that is likely to offer the broader economy more support. The Institute for Supply Management stated that its manufacturing index dipped to 52.6 % last month from 53.2% in June, which marked a one-year high. Still, readings over 50% indicate more companies are expanding instead of shrinking. The index has been positive for five straight months following five negative readings from October 2015 to February 2016.

Moreover, spending on construction tumbled 0.6% in June, with declines spread evenly across the private and public sectors. That was well below forecasts. June spending of $1.13 trillion was 0.3% higher than a year ago, and outlays for the first six months of the year are 6.2% higher compared to the same period in 2015. Housing seems to be holding its own: private residential construction was up 2.6% during the month, making it one of the strongest categories. However, the seasonally adjusted Markit final US Manufacturing Purchasing Managers’ Index registered 52.9 in July, up from 51.3 in the previous month and comfortably above the post-crisis low seen in May (50.7). Improving business conditions reflected stronger rates of output, new order and employment growth during the latest survey period. July data signaled a sustained rebound in production volumes across the manufacturing sector.

Meanwhile, New York Fed President William Dudley stated that it was premature to rule out a policy tightening in 2016, and added that negative shocks were more likely than positive ones due to the unknown fallout from Britain’s vote to leave the European Union, a strong dollar, and because it was safer to delay a move with rates so low. Dudley enlightened that all three of these reasons - evidence that US monetary policy is currently only moderately accommodative, the fact that US financial conditions have been influenced by economic and financial market developments abroad, and risk management considerations - argue, at the moment, for caution in raising US short-term interest rates.

The Dow Jones Industrial Average lost 27.73 points or 0.15 percent to 18,404.51, S&P 500 was down by 2.76 points or 0.13 percent to 2,170.84, while Nasdaq added 22.07 points or 0.43 percent to 5,184.20.

The Indian ADRs closed mostly in green; Dr. Reddy’s Lab was up 0.85%, Wipro was up 0.23%, Tata Motors was up 0.16% and Infosys was up 0.14%. On the other hand, ICICI Bank was down 0.24%.

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