US markets closed lower; Fed holds rates steady

03 Nov 2016 Evaluate

The US markets closed lower on Wednesday, with the S&P 500 recording its longest losing streak in five years after the Federal Reserve, as expected, kept interest rates unchanged. However, the market’s attention was mostly on the election with investors growing nervous as the latest polls showed a tightening presidential race. A Trump victory could trigger financial market volatility given investor worries about his stance on trade, immigration and foreign policy. Trump has also accused the Fed of keeping rates low because of pressure from the Obama administration.

In announcing its decision, the Fed indicated that it doesn’t need for much more evidence to justify a move, boosting the chances of a hike at its final meeting of the year. The Federal Reserve signaled that the time for another interest-rate hike is approaching and it doesn’t need much more evidence before moving. The Fed policy committee voted 8 to 2 to maintain interest rates in a range of 0.25 to 0.5%. The addition of the word ‘some’ was a subtle hint the central bank was inching closer to a December rate hike. Still, the Fed statement did not include the phrase ‘next meeting’ that would have been a blatant signal that it is prepared to raise interest rates. The central bank used that wording last year to signal it was prepared to raise rates. The committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives. There was one fewer dissent on the statement than the prior decision in September as Boston Fed President Eric Rosengren changed his vote. Cleveland Fed President Loretta Mester and Kansas City Fed President Esther George maintained their dissents.

On the economy front, employers added 147,000 private sector jobs last month, the slowest pace since May, ADP Inc. reported. The increase in October was below expectations. ADP also sharply revised its estimate for September job growth up to 202,000. According to ADP, small private-sector businesses added 34,000 jobs in October, medium businesses added 48,000 and large businesses added 64,000. All of those gains were in the service sector - 165,000 jobs added there, compared with 18,000 jobs lost for goods producers. Manufacturing shed 1,000 jobs in October.

The Dow Jones Industrial Average lost 77.46 points or 0.43 percent to 17,959.64, Nasdaq dropped 48.01 points or 0.93 percent to 5,105.57, while S&P 500 was down 13.78 points or 0.65 percent to 2,097.94.

The Indian ADRs closed mostly in red; Tata Motors was down 1.20%, Dr. Reddy’s Lab was down 1.13%, ICICI Bank was down 0.16% and Infosys was down 0.10%. On the other hand, HDFC Bank was up 0.08%.

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