US markets close lower after China seizes US underwater drone

17 Dec 2016 Evaluate

The US markets closed lower on Friday, following reports that a Chinese warship seized an underwater US Navy drone in international waters off the coast of the Philippines. Meanwhile, the Federal Reserve (Fed) Bank of Atlanta raised its forecast for fourth quarter (Q4) gross domestic product (GDP) growth in the US on Friday. The Atlanta Fed increased its US Q4 GDP growth estimate to 2.6%, from the prior forecast of 2.4% published on December 14. The forecast of fourth-quarter real personal consumption expenditures growth increased from 2.1% to 2.4%. In other economy news, the pace of new home construction fell and builders applied for fewer permits in November, another sign of a housing market recovery that remains choppy. Housing starts tumbled 18.7% to a seasonally adjusted annual rate of 1.09 million. October’s pace, a nine-year high, was revised up to 1.34 million. Still, the November data was 6.9% lower compared to a year ago. Builders applied for 1.2 million permits in November, 4.7% lower than in October, which was also revised up. Home-builder sentiment surged in the wake of the presidential election. The last time builder confidence was so high, starts were running at a pace of 1.7 million.

Meanwhile, Richmond Fed President Jeffrey Lacker stated that the Federal Reserve will likely need to raise interest rates more than three times next year and faces challenges in gradually cooling off the US economy. The US central bank raised its target range for rates by a quarter of a point on Wednesday and projected three more hikes next year. Lacker, who did not have a vote but participated in the Fed’s policy meetings this year, added that the US economy would likely receive some fiscal stimulus under the Trump administration. He said the Fed would still be able to raise rates gradually, but perhaps not as slowly as is expected by the majority of policymakers. The Fed raised rates only once in 2016, which followed a single rate hike last year. Lacker enlightened that he will be looking out for signs of rising inflation given the apparent strength of the labor market, but that it would likely be a couple of years before policymakers know if they waited too long to raise rates in 2016.

The Dow Jones Industrial Average lost 8.83 points or 0.04 percent to 19,843.41, Nasdaq was down 19.70 points or 0.36 percent to 5,437.16, while S&P 500 dropped 3.96 points or 0.18 percent to 2,258.07.

The Indian ADRs closed mostly in red; HDFC Bank was down 1.35%, Dr. Reddy’s Lab was down 0.24% and ICICI Bank was down 0.16%. On the other hand, Tata Motors was up by 0.43% and Infosys was up 0.02%.

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