US markets closed lower on European concern

04 Oct 2016 Evaluate

The US markets closed lower on Monday, as concerns over Deutsche Bank’s financial condition and the UK’s plan for exiting the European Union outweighed stronger-than-expected manufacturing data. UK Prime Minister Teresa May stated that she plans on triggering the process of leaving the European Union in late March or early April. New York Fed President William Dudley stated that the Federal Reserve would probably not be able to cut interest rates as aggressively as the last time around if it were faced with a US recession in the next few years. Beginning in 2007, the US central bank slashed rates by 5.25 percent as the financial crisis took hold. With rates having since remained near zero, Dudley added that Fed now has less policy room to respond and thus may be cautious about raising rates. Dudley enlightened that a risk management approach to monetary policy would suggest that the more concerned one is with the effectiveness of these policies at the zero lower bound, the more cautious one would be in the process of removing accommodation. Cleveland Fed President Loretta Mester stated that the US Federal Reserve should not delay in raising interest rates in order to keep up with the economy, suggesting she would again back a modest policy tightening next month. She added that the case would remain compelling to back a rate hike at the next policy meeting, on November 1-2, were the economic data to come in largely as she expects.

On the economy front, outlays for US construction projects weakened in August and July led by steep declines in spending on public projects. Spending on construction tumbled 0.7% in August. Outlays in July were reduced to a 0.3% fall from an initial flat reading. August spending of $1.14 trillion was 0.3% lower than a year ago. Despite the losses, outlays for the first eight months of the year are 4.9% higher compared with the same period in 2016. For overall public construction projects, spending fell 2.0% in August after a 3.5% decline in July.

On the other hand, Americans manufacturers said business improved in September as new orders rose, but the industry is still struggling to grow amid soft demand in the US and weak exports. The Institute for Supply Management stated that its manufacturing index rose to 51.5% last month after dipping into negative territory in August. In a good sign, a measure that reflects new orders jumped to 55.1% from 49.1%. A gauge of production increased 3.2 points to 52.8%.

The Dow Jones Industrial Average lost 54.30 points or 0.30 percent to 18,253.85, Nasdaq dropped 11.13 points or 0.21 percent to 5,300.87, while S&P 500 was down 7.07 points or 0.33 percent to 2,161.20.

The Indian ADRs closed in green; Tata Motors was up 1.01%, Dr. Reddy’s Lab was up 0.99%, HDFC Bank was up 0.49%, Infosys was up 0.18% and ICICI Bank was up 0.13%.

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