US markets closed lower on North Korea tensions

10 Aug 2017 Evaluate

The US markets closed lower on Wednesday, but off session lows as tensions between North Korea and the US added a dollop of geopolitical uncertainty to markets, and as high-profile companies disappointed with their quarterly results. In the latest escalation of tensions between Washington and Pyongyang, the isolated Asian country threatened a missile strike at US territory Guam. That saber-rattling came a day after US President Donald Trump said he would respond with fire and fury like the world has never seen if the country doesn’t halt its threats.

Meanwhile, Chicago Federal Reserve Bank President Charles Evans said that low inflation will not stop the Federal Reserve from beginning to shrink its $4.5 trillion balance sheet next month, but will likely force it to delay further interest-rate hikes until December or even beyond. But while Evans has supported both of the Fed’s rate hikes this year, a third remains a subject for discussion. Evans added that advances in technology have been pressing down on inflation, but the table is set, for those one-time factors, like a large decline in cell phone plan costs earlier this year, to recede. Businesses have been loath to raise wages, but as the unemployment rate sinks further - its latest reading, in July, was 4.3 percent - they may have to, particularly to attract workers with the technical skills they need. Evans said the balance sheet reduction will have little impact on financial markets because it has been so well telegraphed, and that it was important to begin because it will take three to four years before the size of the balance sheet returns to normal proportions.

On the economy front, the productivity of US workers accelerated a bit in the second quarter as economic growth accelerated, though it remains well below historical average. Productivity - or how many goods and services US workers produce per hour - rose at an annual rate of 0.9% in the second quarter from the prior three months. This is up from a 0.1% rate in the first quarter. Unit labor costs, a measure of wages and benefits for US workers, grew at a 0.6% rate in the second quarter compared with the prior three months. This is down from a 5.4% rate in the first quarter. This closely-followed measure reflects how much it costs a business to produce one unit of output, such as a ton of coal, a ream of paper or a bushel of wheat. Faster output growth drove the strength in productivity. Output rose at a 3.4% rate in the second quarter compared with a 1.8% gain in the first quarter. The overall economy, as measured by gross domestic product, accelerated to a 2.6% growth rate from a 1.2% rate in the first quarter. Hours worked rose at a 2.5% annual rate, up from a 1.6% rate in the first three months of the year.

The Dow Jones Industrial Average lost 36.64 points or 0.17 percent to 22,048.70, the Nasdaq dropped 18.13 points or 0.28 percent to 6,352.33, while the S&P 500 edged lower by 0.9 points or 0.04 percent to 2,474.02.

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