US markets drop after Fed stimulus hopes fade

The US markets fell on Wednesday, with the S&P 500 extending its longest losing streak in more than six weeks, as investors debated whether the Federal Reserve will embark on another economic stimulus program after the release of minutes of the latest Fed meeting. The minutes from the June meeting showed policy makers considered the risk that further easing might pose. Some central bankers noted that excessive purchase of Treasuries may lead to deterioration in the functioning of the Treasury market. The minutes of the June 19-20 meeting showed that at least few committee members expressed the view that additional policy stimulus likely would be necessary to promote satisfactory growth in employment and to keep inflation within the Fed’s target. However, the weaker than expected private sector hiring, restrained government spending and a fall in oil price that is expected to help consumer spending played in the rate setting committee’s decision. The Fed plans to continue its plan to purchase $44 billion of US Treasury securities with maturities between 6 years and 30 years while selling equal amount of securities of approximately 3 years or less maturity.

The Fed minutes came amid growing concern that the US economic recovery is faltering and corporate profits are shrinking. Goldman Sachs Group Inc. cut its estimate for second- quarter US gross-domestic product growth twice, lowering it to 1.3 percent after data on wholesale inventories and the trade deficit dimmed prospects for the economy. Some central bankers stated that the Fed would likely need to take additional steps to bolster the job market, according to minutes from their June meeting. In other economic news, the US trade deficit narrowed in May, according to data released by the US Commerce Department. Exports increased 0.2% and imports declined 0.7% in the month from April.

In Europe, Spainish Prime Minister Mariano Rajoy stated that the government will take more measures amounting to 65 billion euros ($79.9 billion) to shore up the budget. The prime minister announced cuts in jobless benefits and public wages, signaled reductions in pensions and raised sales taxes as part of a 65 billion-euro ($80 billion) package of deficit cuts, risking a deeper recession.

The Dow Jones Industrial Average closed lower by 48.59 points or 0.38%, at 12,604.50. The S&P 500 finished down by 0.02 points, to 1,341.45, while the Nasdaq closed down by 14.35 points or 0.49%, to 2,887.98.

The Indian ADRs closed mixed; Tata Motors was down 0.37%, Tata Communications was down 0.08% and Wipro was down 0.01%. On the flip side, ICICI Bank was up by 0.15% and Dr. Reddy’s Lab was up 0.14%.

down 0.37%, Tata Communications was down 0.08% and Wipro was down 0.01%. On the flip side, ICICI Bank was up by 0.15% and Dr. Reddy’s Lab was up 0.14%.