Fed announces October start of balance sheet reduction - 21.9.2017

SP 500 and Dow close at fresh highs while Nasdaq slips

US stocks closed at fresh record highs on Wednesday as Federal Reserve announced the start of its $4.5 trillion balance sheet reduction in October. The dollar strengthened: 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, rose 0.7% to 92.441. The S&P 500 advanced less than 0.1% settling at fresh record high 2508.85 led by financial and industrial shares. The Dow Jones rose 0.2% to new record high 22412.59 with gains in McDonald’s and Pfizer offsetting 1.7% drop in Apple. Nasdaq composite meanwhile fell less than 0.1% to 6456.04.

The US central bank kept federal funds rate between 1% -1.25%, as widely expected, but said it would start to shrink its balance sheet by $10 billion a month. The Fed said it would increase that pace by $10 billion every three months to a maximum pace of $50 billion a month, or $600 billion a year. Twelve out of the sixteen policy committee members indicated they expected to deliver a third rate increase by the end of 2017. Treasury yields rose, with probability of another rate hike in December, as priced by traders in fed funds futures, jumping to 72% compared with 56% the previous day, according to CME Group’s FedWatrch tool.

European stocks slip

European stocks edged lower on Wednesday as investors awaited Federal Reserve’s decision. Both the euro and British Pound reversed previous session gains against the dollar. The Stoxx Europe 600 index slipped 0.04%. Germany’s DAX 30 added 0.1% to 12569.17. France’s CAC 40 rose 0.1% while UK’s FTSE 100 lost 0.05% to 7271.95. Indices opened higher today.

The Pound ended lower after hitting 15-month high above $1.36 level following UK’s Office for National Statistics report of better than expected retail sales in August: retail sales rose 1% after upwardly revised 0.6% increase in July.

GB 100

Asian stocks lower

Asian stock indices are mostly lower today as stronger dollar after Fed’s decision weighed on commodity prices. Nikkei managed to rise 0.2% to 20347.48 as yen extended losses against the dollar with the Bank of Japan keeping policy unchanged. Chinese stocks are down: the Shanghai Composite Index is 0.3% lower and and Hong Kong’s Hang Seng Index is down 0.04%. Australia’s All Ordinaries Index fell 1% despite a drop in Australian dollar against the greenback.

Oil retreats

Oil futures prices are lower today. Prices climbed yesterday helped by rising tensions between the US and Iran and expectations that OPEC will decide to extend its production cut deal. Prices ended higher despite US government data showing a bigger than expected 4.6 million barrels rise in crude supplies. November Brent crude rose 2.1% to $56.29 a barrel on Wednesday on London’s ICE Futures exchange.