Federal Reserve hikes rates as expected - 16.3.2017

US stocks rise as Fed stance seen less hawkish than anticipated

US stock indices closed higher on Wednesday after the Federal Reserve hiked the interest rates and signaled two more rate hikes this year. The dollar weakened as investors deemed the central bank’s stance on the pace of rate hikes this year less hawkish than expected: 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 down 1.1% at 100.572. The S&P 500 rose 0.8% settling at 2385.26 led by energy stocks and financial sector the only one to close in the red. The Dow Jones industrial average gained 0.5% to 20950.10 led by Caterpillar and UnitedHealth shares. The Nasdaq index added 0.7% closing at 5900.05.

The stock market advanced as the Federal Reserve hiked the fed funds rate to range of 0.75% to 1% with the central bank pointing to an improving labor market and greater confidence among consumers and businesses, but acknowledging that there hasn’t been a substantial change in economic conditions which have improved, albeit unspectacularly. The dot plot, which reflects policy makers’ projections for short-term rates, indicated two more hikes this year while recent positive inflation data and hawkish comments by central bank policy maker had raised expectations for more hawkish stance of the central bank and faster pace of rate hikes. Economic data were positive: Consumer Price Index, which measures the cost of living, rose by a seasonally adjusted 0.1% last month, in line with expectations and the headline inflation advanced to 2.7% versus in February after 2.5% in January. Retail sales rose just 0.1% in February with after big gains in the previous two months. Today at 14:30 CET initial jobless claims and unemployment claims will be released, as well as Building Permits and Housing Starts for February and Philadelphia Fed manufacturing index for March. The tentative outlook is neutral.

European stocks advance ahead of Dutch elections

European stocks closed higher on Wednesday led by energy stocks as oil prices rose. Both the euro and British Pound rebounded against the dollar. The Stoxx Europe 600 rose 0.4% led by energy, basic materials and financial stocks ahead of Federal Reserve decision. Germany’s DAX 30 gained 0.18% to 12009.87. France’s CAC 40 added 0.23% while UK’s FTSE 100 index advanced 0.15% to 7368.64.

Investors were cautious ahead of Federal Reserve interest rate decision with added uncertainty surrounding the Dutch parliamentary elections dampening risk appetite. Today results of Wednesday's Dutch elections suggested that the populist party PVV would come a second to the current center-right ruling party. A potential victory by anti-EU PVV was seen as bolstering the chances for far-right French presidential candidate Marine Le Pen in April elections who has vowed to take France out of EU in case she wins. In other economic news French inflation rose 1.2% on the year in February. Today at 14:00 CET the Bank of England will meet to decide on monetary policy outlook, no policy change is expected. Before that at 12:00 CET final reading of euro-zone February inflation will be released, the outlook is neutral for euro.

GB 100

Asian stocks rally after Fed rate hike

Asian stock indices are higher today after the Federal Reserve signaled it plans gradual rate hikes with just two more rate increases as was indicated in policy makers’ December projections for 2017 rate hikes. Nikkei ended up 0.1% pairing early losses as yen advanced against the dollar. The market largely shrugged off the Bank of Japan's decision to keep its monetary policy steady as widely expected. Chinese stocks are higher despite central bank’s decision to raise short-term interest rates 0.1 percentage points, the third in as many months: Shanghai Composite Index is 0.9% higher and Hong Kong’s Hang Seng Index is up 2%. Australia’s All Ordinaries Index is up 0.2% despite data showed the country's jobless rate hit a 13-month peak in February and the Australian slipped against the dollar.

Oil prices rebound after US stockpile draw

Oil futures prices are extending gains today as dollar slipped after Federal Reserve statement was less hawkish than expected, making commodities less expensive for users of other currencies. Prices rose on Wednesday after official data showed US crude stockpiles fell by 237 thousand barrels last week when a build of more than 3 million barrels was expected. May Brent crude rose 1.8% to $51.81 a barrel on Wednesday on London’s ICE Futures exchange on news US crude inventories fell for the first time in ten weeks.