August malaise continues with Dow in the red

US shares extended their losses on Wednesday afternoon in New York, with investors increasingly focused on the possibility of Fed tapering in September.

The Dow was down 0.53% or 81 points at 15,369 with under an hour of trading remaining before the market close in New York.

Stocks have been pressured since several Fed officials last week made comments pointing toward tapering of stimulus in September, with the Dow losing ground in six of the last eight trading sessions.

Remarks yesterday from Atlanta Fed president Dennis Lockhart, downplaying the likelihood of a detailed tapering plan in September because of the lack of clarity from recent economic data, have failed to halt the downward trend in the stock market.

James Bullard, the president of the St Louis Fed, said in a speech today in Kentucky that he remains concerned about low inflation, and the latest inflation report will have offered him little consolation: the producer price index came in unchanged in July, thanks to a dip in energy prices. Core prices (that is, excluding food and energy) showed a 0.1% rise, which was lower than expected. The core rate grew 1.2% on an annual basis.

This is just the latest in a line of reports to show how cool inflation is in the US. With inflation so substantially below the Fed target, James Bullard may not be the only Fed official at the next FOMC meeting arguing for tapering to be deferred until there are signs of a pick-up in inflation.

The consumer price index, a more important indicator of inflation as far as the Fed is concerned, is released tomorrow at 1.30pm BST, with a monthly change of +0.2% expected.

Dow component Cisco Systems reports after the market close tonight and Wal-Mart reports on Thursday before the US markets open.

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