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US markets closed lower as dollar rally sparks concern

19 Nov 2016 Evaluate

The US markets closed lower on Friday, as dollar continued to charging higher and investors booking profits on the recent rally pressuring major indexes. A stronger dollar can erode the profitability of large-cap companies, who depend more on exports. On the economy front, the US is growing at a moderate pace and is likely to do so through early 2017, according to an index that measures the nation’s economic health. The leading economic index rose 0.1% in November after a 0.2% gain in the prior month. A measure of current economic conditions rose 0.1%. A lagging index increased 0.2%. The LEI is a gauge of 10 indicators designed to signal business-cycle peaks (expansions) and valleys (recessions). Meanwhile, St. Louis Fed President James Bullard stated that the US election has not changed the Federal Reserve’s outlook for next year as the actual impact of any policy changes would take effect from 2018 and 2019. Bullard added that Fed’s slow pace in hiking rates should not be called normalization, arguing that 25 basis points is not very meaningful in macroeconomic terms and indicates that the Fed is essentially on hold with just very small upward moves. Bullard enlightened the debate is now shifting toward the Fed’s rate path in 2017 and how Trump’s policies on taxes, infrastructure, spending and regulation will affect growth, productivity and ultimately Fed policy. The new administration’s measures could have a significant impact on the economy in 2018 but some possible proposals to curb immigration and trade may take a decade to have a major impact.

Meanwhile, New York Fed President William Dudley stated that post-US election market reaction is not concerning in terms of planned interest rate rises, because the bond selloff and dollar rise appears motivated by expectations of new policies out of Washington. The movement in markets seems consistent with the change in expectations of how economic policy might evolve. Asked about Trump’s pledge to boost economic growth to about 4%, from less than 2% so far this year, Dudley, a close ally of Fed Chair Janet Yellen, said it is possible but would be unusual given the big rise in labor growth and productivity would be needed. Kansas City Federal Reserve Bank President Esther George notified that while she supports raising interest rates, the US central bank must do so only gradually. George, who dissented several times this year on Fed decisions to leave rates unchanged, added that the Fed is widely expected to raise rates when it meets next month.

The Dow Jones Industrial Average lost 35.89 points or 0.19 percent to 18,867.93, Nasdaq was down 12.46 points or 0.23 percent to 5,321.51, while S&P 500 dropped 5.22 points or 0.24 percent to 2,181.90.

The Indian ADRs closed in red; Dr Reddy’s was down 0.75%, HDFC Bank was down by 0.28%, Infosys was down 0.21%, Tata Motors was down 0.13% and ICICI Bank was up 0.06%.




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