US markets closed lower on Alcoa’s results

12 Oct 2016 Evaluate

The US markets closed lower on Tuesday, after aluminum giant Alcoa Inc.’s results casted a shadow over the broader market as third-quarter earnings season got under way. A stronger dollar and a retreat in oil prices also hurt sentiment. Both the large cap and the blue-chip indexes posted their worst percentage declines since September 13, while the Nasdaq had its worst day since September 9. The odds for rate hike by the Federal Reserve (Fed) in December passed the historically significant 70% threshold on Tuesday, suggesting that market expectations have reached a level of acceptance for the US central bank to return to policy normalization at the end of the year. The Fed Rate Monitor Tool, odds rose to 70.2%, having hovered at just below that threshold a day earlier. In the run-up to the last policy-decision meeting, many pundits explained that the Fed was unlikely to raise interest rates due to the historic fact that, in the last 25 years, the probability had been at or above this level in 90% of the cases wherein the Fed tightened policy.

Meanwhile, Minneapolis Federal Reserve President Neel Kashkari stated that Fed should continue to focus on further progress in the US labor market until inflation pressures emerge. He added that given inflation has been below the Fed’s two-percent target rate for more than four years, there appeared no urgency to raise interest rates. Most Fed policymakers are backing a rate hike by year’s end should the labor market and inflation continue to firm. Kashkari has yet to comment on when he prefers to see a rate increase and has said more patience is less risky than raising the benchmark interest rate too soon. Chicago Federal Reserve Bank President Charles Evans stated that the US Federal Reserve should engineer monetary policy to spur inflation to rise above its two-percent target because the costs of doing so are less than in past decades. Evans added that it could be fine with the Fed raising rates in December, but he wanted to see how the economy and inflation progressed before deciding. Indeed, he cautioned that it might be better to wait for inflation to rise closer to the Fed’s 2 percent target before moving.

On the economy front, the NFIB Small Business Optimism Index fell 0.3 percentage points in September to 94.1, following a 0.2 percentage point drop in August. The overall index remains roughly even with its six month average. The National Federation of Independent Business (NFIB) noted that business owners are maintaining a guarded stance on hiring and inventories. Despite this caution, fewer business owners expressed concern about the economic outlook and more said they expect sales to improve over the next six months. Both series rose from negative readings during the prior month, with the share of owners expecting economic conditions to improve jumping 12 points to zero and the net proportion expecting sales to increase rising 5 points from -1 percent to 4 percent.

The Dow Jones Industrial Average lost 200.38 points or 1.09 percent to 18,128.66, Nasdaq dropped 81.88 points or 1.54 percent to 5,246.79, while S&P 500 was down 26.93 points or 1.24 percent to 2,136.73.

The Indian ADRs closed in red; Dr. Reddy’s Lab was down 0.43%, HDFC Bank was down 0.37%, Tata Motors was down 0.34%, Infosys was down 0.17% and Wipro was down 0.12%.

US markets closed lower on Alcoa’s results

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