US markets slip as Fed battles over budget deal

The US markets slipped on Monday, after notching three weeks of gains, as lawmakers in Washington continue to battle over a budget deal. Investors were cautious with the discussions going on in Washington related to the budget talks and the debt ceiling. Dennis Lockhart, the president of the Atlanta Federal Reserve stated that US economy is losing some of its economic dynamism. Lockhart added that data showed the employment dynamics of the US economy are slower, with fewer firms expanding employment and fewer people quitting work to find new opportunities. In addition, labor productivity has slowed down in recent quarters. New York Federal Reserve Bank President William Dudley enlightened that US economic recovery still requires a very accommodative monetary policy. Dudley stated that he backed last week’s decision by the Fed’s policy-making committee to maintain the size of its bond-buying program due to concerns about the fiscal drag created by payroll and income-tax increases and the budget sequester, tighter financial market conditions since May and a tepid recovery in employment. Separately, Dallas Federal Reserve President Richard Fisher stated that he urged his colleagues at the central bank’s policy-meeting last week to slow down the bond-buying pace because a failure to act would increase uncertainty and sow confusion. Fisher has never supported the Fed’s third round of asset purchases, known as quantitative easing, or QE3. Fisher is not a voting member of the Fed’s policy-making committee this year.

On the economy front, the preliminary reading of Markit’s US flash manufacturing purchasing managers index slipped to 52.8 in September from 53.1 in August and declined for the second month in a row. Although the index is consistent with a modest improvement in manufacturing business conditions, the rise in new orders was the slowest since April and the employment gauge was at a three-month low. On the other hand, an index of national activity turned positive in August, indicating above-trend growth, according to the Chicago Fed. The national activity index rose to +0.14 from -0.43 in July, while the three-month moving average edged up to -0.18 from -0.24 in July. The index is a weighted average of 85 different economic indicators, and when the three-month average is below -0.7 there’s an increasing chance a recession has begun.

The Dow Jones Industrial Average lost 49.71 points or 0.32 percent to 15,401.40, the S&P 500 was down 8.07 points or 0.47 percent to 1,701.84, while the Nasdaq dropped 9.44 points or 0.25 percent to 3,765.29.

Indian ADRs closed mostly in green on Monday; Infosys was up 0.58%, Dr. Reddy’s Lab was up by 0.39% and Wipro was up 0.18%. On the other hand, ICICI Bank was down 0.40% and HDFC Bank was down 0.19%.