US markets closed lower on rising geopolitical tensions

12 Apr 2018 Evaluate

The US markets closed lower on Wednesday, as investors assessed rising geopolitical tensions. Major indexes came under pressure in early trade after tweets from President Donald Trump suggested he was preparing for a military strike in Syria and underlined a tense relationship with Russia. China’s commerce ministry said that the country is well prepared and will not hesitate to fight back if the United States escalates its trade spat with Beijing, adding Chinese President Xi Jinping’s pledge to cut import tariffs is not a concession. The minutes of the central bank’s last policy meeting on March 20-21 released showed that all of the Federal Reserve’s policymakers felt that the US economy would firm further and that inflation would rise in the coming months. The readout of the meeting, at which the Fed unanimously voted to raise borrowing costs by a quarter percentage point, also showed that policymakers were wary about the impact of the Trump administration’s trade and fiscal policies. All participants agreed that the outlook for the economy beyond the current quarter had strengthened in recent months. In addition, all participants expected inflation on a 12-month basis to move up in coming months. Policymakers also see additional impetus from an economy in which the labor market is tightening, the dollar weakening and the stimulus from a $1.5 trillion income tax cut package and increased government spending yet to impact on the economy.

On the economy front, the federal government’s budget deficit was $209 billion in March, up 18% from the same month a year ago. Receipts were $211 billion, down 3%, and spending rose 7% to $420 billion. The new tax law continues to widen the deficit, with withholding of individual income and payroll taxes off by 2% in March. In January, the IRS issued new withholding tables based on the law enacted by President Donald Trump in December. Spending was higher in March on Social Security, Medicaid and interest on the public debt. Interest payments were 11% higher. For the first half of the fiscal year, the shortfall is $600 billion, up 14% over the prior fiscal year’s first six months.

Meanwhile, the consumer price index fell slightly in March to mark the first drop in 10 months, but the decline was entirely due to the lower cost of gasoline. Americans paid more for almost everything else as inflation continues to creep higher. The CPI dipped 0.1% last month. Yet the rate of inflation over the past 12 months rose to 2.4% from 2.2% and hit a one-year high. After stripping out gas and food, the more closely followed core rate of inflation advanced 0.2% in March. And the 12-month rate of core inflation jumped to 2.1% from 1.8%, the highest level in more than a year.

The Dow Jones Industrial Average lost 218.55 points or 0.90 percent to 24,189.45, the Nasdaq dropped 25.275 points or 0.36 percent to 7,069.03, while the S&P 500 was down by 14.68 points or 0.55 percent to 2,642.19.

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