US markets closed lower in wake of hawkish Fed tone

31 Aug 2016 Evaluate

The US markets closed lower on Tuesday, as investors weighed additional comments from Federal Reserve members that emphasized the central bank’s intention to raise interest rates sooner rather than later. Tuesday’s moves were marked by seasonally light volumes and a relatively low reading of volatility, as measured by the CBOE Volatility Index. Federal Reserve Vice Chairman Stanley Fischer stated that it is impossible to say whether the next interest-rate hike would be one and done. Fischer did not provide new insight into the possible timing of a move. He said the US economy is nearing full employment and had withstood the rise in the dollar’s value in foreign exchange markets. Fischer sounded unenthusiastic about using negative interest rates as a policy tool in the event of a recession, citing research that said pushing rates below zero works in the short-run but then becomes counter-productive. The rate-setting Federal Open Market Committee will next meet on September 20-21. It holds a meeting on November 1-2, just ahead of the US presidential election, and wraps up its 2016 schedule with another two-day huddle on December13-14.

On the economy front, a city-by-city look at US house prices as the S&P CoreLogic Case-Shiller 20-city composite recorded a 0.8% monthly gain and a 5.1% year-on-year advance. After seasonal adjustment, the 20-city composite fell 0.1%. The yearly growth slowed to 5.1% from 5.3% in May - which represents the fifth straight month of flat or decreasing year-over-year growth. The 20-city composite is down 8.1% from the 2006 peak and up 41.6% from the 2012 trough. House prices are still running far ahead of inflation.

However, an index that measures consumer confidence held steady in July, suggesting Americans are ‘cautiously optimistic’ that the US economy will continue to grow. The consumer-confidence index was little changed this month, finishing at 97.3 compared with a revised 97.4 in July. The present-situation index, a measure of current conditions, rose to 118.3 from 116.6. The future-expectations index declined to 83.3 from 84.6.

The Dow Jones Industrial Average lost 48.69 points or 0.26 percent to 18,454.30, Nasdaq was down 9.34 points or 0.18 percent to 5,222.99, while S&P 500 dropped 4.26 points or 0.20 percent to 2,176.12.

The Indian ADRs closed in green; HDFC Bank was up 0.79%, Dr. Reddy’s Lab was up 0.49%, ICICI Bank was up 0.14%, Infosys was up 0.11% and Wipro was up 0.04%.

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