“FOMC Interest Rate Hike” What just happened yesterday?

December 15, 2016

Fed projects three rate hikes in 2017 - US stocks fall as Fed indicates three rate hikes.

“FOMC Interest Rate Hike” What just happened yesterday?

This article is originally referred from IFC Markets - Technical Analysis

US stock indices retreated on Wednesday as Federal Reserve hiked short term rates by quarter percentage points to a range of 0.5%-0.75%.

The dollar jumped after the dot plot of policy makers’ projections indicated three interest rate hikes in 2017 instead of just two as predicted in September projections.

The live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, closed 1.1% higher at 102.124.

The S&P 500 ended 0.8% lower settling at 2253.28, with all sectors closing in the red. The Dow Jones industrial average fell 0.6% to 19792.66. The high tech index Nasdaq finished 0.5% lower at 5436.67.

Markets anticipated the first interest rate hike in 2016 but the indication of a faster pace of rate hikes in 2017 came as a surprise.

The stock market rally that started in November was fueled by president Trump’s proposals to cut taxes and implement massive infrastructure projects which will result in accelerated growth and inflation.

The upgraded outlook of three rate hikes in 2017 according to the dot plot as members of the Federal Open Market Committee voted unanimously to raise rates suggest that policy makers are determined to combat inflationary pressures as the Trump administration starts implementing the proclaimed policies.

In other economic news, the 0.1% rise in retail sales in November was slower than expected. On the other hand the producer-price index jumped 0.4% in November due to higher wholesale margins.

Today at 14:30 CET November Consumer Price Index will be published, the outlook is positive for dollar. At the same time Initial Jobless Claims and Continuing Claims will be released in US. At 15:45 CET preliminary December Manufacturing PMI will be published, the outlook is positive. And at 16:00 CET December NAHB Housing Market Index will be released, the outlook is neutral.

European stocks decline ahead of Fed decision


European stocks ended lower on Wednesday pulling back from eleven month high as investors braced for the Federal Reserve decision.

The euro and British Pound slumped against the dollar as the Fed hiked short term rates quarter percentage points as widely antcipated.

The Stoxx Europe 600 ended 0.5% lower. Germany’s DAX 30 declined 0.4% to 11244.84. France’s CAC 40 dropped 0.7% and UK’s FTSE 100 index lost 0.3% closing at 6949.19.

While the interest rate hike was seen as virtually certain, investors were cautious expecting higher volatility following the rate decision. In a sign of rising tensions between the Greek government and creditors euro-zone suspended debt-relief measures for the country after the Greek government announced it would boost welfare benefits for low-income pensioners.

The suspension was announced as the Greek government and international creditors comprised of euro-zone and the International Monetary Fund struggled to conclude the latest review of the country’s rescue plan of as much as €86 billion ($92 billion) in loans.

Today the Swiss National Bank left the monetary policy unchanged. December preliminary Manufacturing PMI came in at 55.5 compared with 54.3 the previous month and the Services PMI ticked to 53.8 from 55.1 in Germany.

At 10:00 CET flash Manufacturing and Services PMIs will be published in euro-zone, the outlook is positive for euro. At 10:30 CET November Retail Sales will come out in UK, the outlook is negative for Pound. At 13:00 CET Bank of England Rate Decision will be announced, the central bank is expected to keep the policy unchanged.

Asian stocks down on surprise Fed projections

Asian stocks are falling today after the Federal Reserve surprised the markets projecting a faster pace of interest rate hikes in 2017.

Nikkei ended 0.1% higher at 19273.79 erasing earlier losses as yen weakened against the dollar.

The Shanghai Composite Index is down 0.7% and Hong Kong’s Hang Seng index is 1.8% lower.

Australia’s All Ordinaries Index fell 0.79% while the Australian dollar edged higher against the dollar.

Oil prices stabilize on expectations of market rebalancing

Oil futures prices are edging higher today after a sharp decline on Wednesday as traders see a global oil market headed to a substantial deficit in the first quarter of 2017 if the Organization of the Petroleum Exporting Countries (OPEC) and other major producers implement their announced cuts of almost 1.8 million barrels per day in output.

Prices were supported also by the US Energy Information Administration report US crude inventories last week declined by 2.56 million barrels to 483.19 million barrels.

Oil prices fell yesterday for the first time in five sessions after a monthly report from OPEC showed that output rose in November.

February Brent crude closed 3.3% lower at $53.90 a barrel on Wednesday on London’s ICE Futures exchange.

Original Source: IFC Markets - Technical Analysis

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