US markets closed lower on inflation jitters, weaker oil

18 Oct 2016 Evaluate

The US markets closed lower on Monday, as warnings about accelerating inflation coupled with crude-oil trading below $50 a barrel overshadowed strong earnings. Fed Vice Chair Stanley Fischer stated that the Federal Reserve is very close to its US employment and inflation targets, as he warned against making rash changes to the policy framework in an effort to boost economic growth. Fischer added that a world where low growth hamstrings central banks from effective recession-fighting, the US economy may face longer and deeper recessions in the future if interest rates remain stuck at current low levels. Asked about the notion of raising the Fed’s inflation goal to 3 percent from the current 2 percent, the No. 2 US central banker said he was not enthusiastic about such tinkering. Fischer, unlike some of his Federal Open Market Committee colleagues, says he doesn’t see a threat to financial stability from current low rates. Federal Reserve Bank of Boston President Eric Rosengren stated that by the middle of next year, he expects unemployment to fall to 4.7 percent and inflation to beat the Fed’s 2 percent target, leaving policymakers at risk of having to squelch the recovery with faster-than-expected rate increases. When Rosengren surprised markets with his dissent at September’s Fed meeting and argued for an immediate rate rise, it was with that forecast in mind, and a concern that the best way to protect future job growth is to slow things a bit now even if it is a risk.

On the economy front, a gauge of New York-area manufacturing became more pessimistic in October. The Empire State index fell to negative 6.8 from negative 2 in September, on a scale where any reading below zero indicates contracting activity. That’s the weakest reading since May. The index for new orders improved slightly but was still negative at minus 5.6. Orders for shipments, unfilled orders, delivery time, inventories, number of employees and average employee workweek all were negative. On the other hand, industrial production rose slightly in September, led by an increase in construction supplies, but there’s little sign of a broad rebound in the offing for struggling manufacturers. The industrial production grew 0.1% last month. In August, production had fallen a revised 0.5%. American goods producers are still coping with stern headwinds, however. Industrial production fell again in the second quarter and output is down 1% in the past year.

The Dow Jones Industrial Average lost 51.98 points or 0.29 percent to 18,086.40, Nasdaq dropped 14.34 points or 0.28 percent to 5,199.82, while S&P 500 was down 6.48 points or 0.30 percent to 2,126.50.

The Indian ADRs closed mixed; HDFC Bank was down 0.79%, Tata Motors was down 0.51% and Dr. Reddy’s Lab was down 0.01%. On the other hand, ICICI Bank was up 0.35% and Infosys was up 0.04%.

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