US markets drop as talks on budget deal drags

The US markets extended their decline on Friday, with the Dow and the S&P 500 marking their first weekly decline in a month, as investors fixated on the lack of a federal government budget deal and ignored upbeat economic reports in the US. Investors have mostly maintained a wait-and-see stance anticipating resolution to negotiations that had President Barack Obama and House Speaker John Boehner speaking for nearly an hour at the White House, with both of their offices saying lines of communication remained open after their third such meeting. Fiscal cliff talks between House Speaker John Boehner and US President Barack Obama continue with the Democrats and Republicans showing no signs of compromise. Besides, the Federal Reserve unanimously voted to propose subjecting foreign banks with large US operations to tougher capital and liquidity rules. These firms would be subject to stress tests and the same capital and leverage standards applicable to US banks. The proposal would apply to 107 foreign banks with operations in the US that have total global assets of $50 billion or greater, though tougher rules would be imposed on 23 institutions that have US assets of $50 billion or more. The measure, if approved, would be effective July 1, 2015, as part of an effort to give designated banks enough time to implement the requirements.

On the economy front, the market had virtually no reaction to data from the Labor Department, which reported the cost of living fell last month. The US consumer price index declined 0.3% in November following a 0.1% increase in October. The gasoline index fell 7.4% in November; this decrease more than offset increases in other indexes, resulting in the decline in the seasonally adjusted all items index. The index for all items less food and energy increased 0.1% in November after a 0.2% increase in October. Another report, this one from the Federal Reserve, had US industrial production climbing in November. Industrial production in the US increased 1.1% in November after falling 0.7% in October, driven from a recovery in production for industries that had been negatively affected by Hurricane Sandy. Manufacturing output rose 1.1% in November following a decrease of 1% in October.

In Europe, the European leaders wrapped a two-day summit and made a halting progress as leaders postponed decision making, keeping in view the next election cycle. The leaders approved the euro zone wide banking union but failed to agree on the size of the rescue fund to solve future problems banks blowing into a national crisis. Besides, German Chancellor Angela Merkel stressed at a press conference after the marathon talks that the size of rescue fund is likely to be less than 20 billion euros and not as large as 100 billion euros. The smaller size of the rescue fund will restrict the European Central Bank’s ability to make a dent in the future banking rescue efforts. On the economy front, the latest survey of businesses in manufacturing and services industry indicated another month of growth decline. The Purchasing Managers Index tracked by a private researcher Markit showed the index in December increased to 47.3 from 46.8 in November. The index below 50 still indicates a decline in activities. Besides, euro zone annual inflation eased to 2.2% in November from 2.5% in October. A year earlier the rate was 3%. On a monthly basis, inflation fell 0.2% in November. Separately, Standard & Poor’s revised its outlook on the unsolicited long-term ratings on the United Kingdom to negative from stable but affirmed the ‘AAA/A-1+’ long- and short-term unsolicited sovereign credit ratings.

The Dow Jones Industrial Average lost 35.71 points or 0.27 percent, to close at 13,135.00, the S&P 500 declined by 5.87 points or 0.41 percent, to finish at 1,413.58, while the Nasdaq fell by 20.83 points or 0.70 percent, to end at 2,971.33.

Indian ADRs closed mixed on Friday, Dr. Reddy’s Lab was down 0.24%, HDFC Bank was down by 0.22% and Infosys was down 0.09%. On the other hand, ICICI Bank was up 0.62% and Tata Motors was up 0.24%.