US markets closed lower on fears of rate-hike

The US markets ended lower on Thursday, on mounting fears that the Federal Reserve’s next interest-rate hike could come as early as June. Most members of the Federal Reserve’s interest-rate setting committee are ready to lift interest rates in June if the economy shows more life. William Dudley, the president of the New York Fed stated that it would be appropriate for the Federal Reserve to raise interest rates again at either the June or July meeting as long as the economy rebounds from a weak first quarter as expected. Dudley added that markets now see a 60% chance of a rate hike in either June or July. The financial conditions is however important to the US central bank. If conditions tightened too much, the Fed would go slower on raising interest rates, but the converse was also true. On the economy front, the Federal Reserve Bank of Philadelphia’s barometer of regional manufacturing activity dropped further into negative territory this month on a decline in new orders. The gauge of regional manufacturing activity in the Philadelphia region slipped to negative 1.8 in May from negative 1.6 in April. This is the eighth negative reading in the past nine months. The new-orders index fell to negative 1.9 in May from a flat reading in April. On the other hand, the shipments index rose 10 points to negative 0.5.

Meanwhile, the number of Americans who applied for unemployment benefits in mid-May fell by 16,000 to 278,000 - with most of the drop concentrated in New York - in a reassuring sign the labor market is still fairly healthy. Initial jobless claims had risen three straight weeks to a 14-month high, capped off by sharp 20,000 increase in the first week of May. The rise in clams, combined with a soft US jobs report in April, appeared to indicate that hiring was slowing and layoffs were on the rise. The average of new claims over the past four weeks, a less volatile measure, rose by 7,500 to 275,750. The number of Americans collecting unemployment benefits, meanwhile, declined by 13,000 to 2.15 million in the week ended May 7. Continuing claims are reported with a one-week lag.

The Dow Jones Industrial Average lost 91.22 points or 0.52 percent to 17,435.40, Nasdaq dropped 26.59 points or 0.56 percent to 4,712.53, while S&P 500 was down by 7.59 points or 0.37 percent to 2,040.04.

The Indian ADRs closed in red; HDFC Bank was down 1.59%, Dr. Reddy’s Lab was down 0.52%, ICICI Bank was down by 0.25%, Infosys was down 0.17% and Tata Motors was down 0.15%.