Asian, European markets rise, dollar up after Fed rate hike

Wall Street drops; oil and gold down

NEW YORK, Dec 17, (Agencies): Wall Street led global equity markets lower on Thursday a day after the US Federal Reserve’s first interest rate hike in nearly a decade, as continued pressure on oil weighed on energy-related stocks.

The long-anticipated though modest increase in the federal funds rate boosted the dollar to a fresh twoweek high against a basket of major currencies.

Brent and US crude fell and remained near multi-year lows on oversupply concerns and strength in the dollar.

The oil woes helped push US equities lower after rallying on Wednesday, with the S&P energy index down 2 percent as the worst performing of the 10 major S&P sectors.

“We are seeing some weakness but we are not seeing that hyperbolic fear that we have seen really inform the entire equity trading narrative as a result of crude’s collapse,” said Peter Kenny, equity market strategist at Kenny & Co LLC, in Denver.

“It is going to continue to be a variable that weighs on the market.”

Stocks in Europe gained, however, as investors there took the Fed hike as a sign of confidence in the world’s largest economy.

The Fed’s stimulus measures have helped the S&P 500 more than triple from lows reached in March 2009 during the Great Recession.

The Dow Jones industrial average fell 165.96 points, or 0.94 percent, to 17,583.13, the S&P 500 lost 23.75 points, or 1.15 percent, to 2,049.32 and the Nasdaq Composite dropped 49.82 points, or 0.98 percent, to 5,021.31.

MSCI’s all-country world index lost 0.3 percent, even as the pan-European FTSEurofirst 300 index jumped 1.1 percent.

The dollar index, which measures the greenback against a basket of other major currencies, was up 1.1 percent at 98.955, on pace for its biggest percentage gain since Nov. 6. The euro lost 0.6 percent at $1.0848, exemplifying the diverging paths of the Fed and European Central Bank.

US

Wall Street looked set to snap a three-day rally on Thursday, dragged down by energy and materials stocks, a day after the Federal Reserve raised interest rates for the first time in nine years.

Crude oil prices resumed their slide after gaining earlier in the day on persistent oversupply worries and after the dollar hit a twoweek high.

The central bank raised its benchmark rate by 25 basis points to between 0.25 percent and 0.50 percent, signaling confidence in the strength of the world’s largest economy.

Global stocks surged on Fed Chair Janet Yellen’s assurance that further tightening would be gradual and heavily dependent on inflation, which remained firmly below the central bank’s 2 percent target.

“The markets have reversed from a higher opening, but that was to be expected after yesterday’s surge,” said Peter Cardillo, chief market economist at First Standard Financial in New York.

At 11:02 am ET (1602 GMT), the Dow Jones industrial average was down 115.28 points, or 0.65 percent, at 17,633.81, the S&P 500 was down 16.71 points, or 0.81 percent, at 2,056.36 and the Nasdaq Composite index was down 29.91 points, or 0.59 percent, at 5,041.23.

All 10 major S&P sectors were lower, with the energy sector’s 1.6 percent fall leading the decliners. Conocophilips was down 4 percent and was the biggest drag on the sector.

Exxon and Chevron were both down about 1 percent.

Newmont Mining was down 8 percent at $17.58 and was the biggest influence on the materials index’s 1.25 percent decline.

Europe

European shares surged on Thursday as investors took the US Federal Reserve’s interest rate rise and the prospect of further tightening as a sign of confidence in the world’s biggest economy.

The Fed made clear late on Wednesday that the 25-basis point rate hike was a tentative beginning to a “gradual” tightening cycle.

“With the confirmation of the Fed rate rise due to a strong US economy, investors took cheer as the decision formalises opinion that the US economy is broadly expanding,” said Lorne Baring, managing director of B Capital Wealth Management.

The pan-European FTSEurofirst 300 index was up 1.6 percent by 1530 GMT after climbing to a one-week high, while Germany’s DAX, France’s CAC and Britain’s FTSE 100 rose between 3 to 1 percent.

“With the Fed out of the way and only a couple of trading sessions left before Christmas, we could now see a traditional end-year rally,” Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels, said.

“The new year will once again prove to be quite volatile as markets will start to anticipate the next rate hike.”

European indexes came off midday highs as the rally at Wall Street lost momentum the day after the Fed decision.

But cyclical sectors such as automobiles, banking , and insurance continued to perform well with gains of 2 to 3.2 percent, featuring among the top sectoral gainers in Europe.

Casino fell as much as 20 percent after research firm Muddy Waters, founded by short-seller Carson Block, said the French retailer was one of the “most overvalued and misunderstood” companies it had ever come across.

AstraZeneca rose 0.7 percent after the drugmaker said it had agreed to buy 55 percent stake of privately held biotech firm Acerta Pharma for $4.0 billion to give it access to a new kind of drug for fighting blood cancers.

UK

Britain’s top share index climbed on Thursday, tracking gains on other equity markets after investors took the first US interest rate rise in nearly a decade as a sign of policymakers’ confidence in the world’s biggest economy.

The US Federal Reserve raised interest rates by 0.25 percent in a well-telegraphed move. The central bank also signalled that the pace of policy tightening would be gradual.

Banking stocks rose as banks typically make more money in a higher interest rate environment.

Healthcare stocks including AstraZeneca and Shire rose after Astra’s decision to buy 55 percent of Acerta Pharma highlighted the extent of takeover activity within the industry, which has boosted health stocks this year.

Stocks with exposure to emerging markets were among the best performing stocks on the globally-exposed FTSE 100 as the move by the Fed was well received across the world.

“The Fed’s decision came as no real surprise to anyone and there was a palpable sense of relief that the move has finally been made,” said AJ Bell Investment Director Russ Mould.

Standard Chartered led the market higher, up nearly 8 percent, though the EM-exposed lender remained down 40 percent for the year.

People familiar with the matter said that top investor Temasek was willing to give Standard Chartered time to work on its turnaround before deciding on the fate of its underperforming $4 billion stake in the UK bank as part of a portfolio reshuffle.

Asia

Asian stock markets rallied for a second day Thursday and the dollar clocked up advances against most other currencies after the Federal Reserve finally lifted interest rates for the first time in almost a decade.

The widely expected move was met with a surge in shares in New York and Europe as well as Latin America as the US central bank reiterated its view that the world’s number-one economy is in rude health.

It also brings to an end months of speculation and uncertainty that had rattled world markets and fuelled concerns that the economy’s recovery was not as strong as thought.

“There’s a sense of relief that they finally raised rates,” said Chris Green, a strategist at brokerage and wealth management firm First NZ Capital Group in Auckland.

“This is a net positive in terms of market sentiment. It’s removed the point of lift-off from the discussion, we’re over that hurdle.

Now the question is: how gradual is that normalisation profile and where do the risks lie,” he told Bloomberg News.

Fed chair Janet Yellen said the decision “recognises the considerable progress that has been made toward restoring jobs, raising incomes and easing the economic hardship of millions of Americans.”

Rates were cut to near-zero in 2008 by the Fed as part of a drive to fend off the ravages of the global financial crisis as it tore into the US economy, scything jobs and sending world stocks into free fall.

The bank now sees US growth picking up pace to 2.4 percent next year despite a slowdown in most other world economies, particularly China, and also stressed future rate hikes would be “gradual”, forecasting 100 basis points throughout 2016.

Yellen said the move represents a US economy that “is a source of strength to the emerging markets and other economies around the globe”.

However, she added that there was still room for improvement in the jobs market while inflation was still below target.

Asian traders tracked global gains. Tokyo ended 1.6 percent higher, Shanghai put on 1.8 percent and Sydney climbed 1.5 percent.

Oil

Oil prices fell as much as 2 percent on Thursday, with Brent trading not far from 11-year lows, as data showing fresh supply builds at the delivery point for US crude futures added to worries about a global glut.

Market intelligence firm Genscape reported an inventory increase of 1.4 million barrels at the Cushing, Oklahoma delivery hub for the US crude’s West Texas Intermediate (WTI) futures, traders who saw the data said.

“Bearish fundamentals are hanging over the oil markets like storm clouds, with no break in sight or relief in the near future,” said Chris Jarvis, founder of Caprock Risk Management, an oil market consultancy in Frederick, Maryland. “The dollar is moving higher too.”

The dollar hit a 2-week high against a basket of currencies , making oil and other commodities denominated in the greenback less affordable to users of the euro among others.

WTI was down 68 cents, or 2 percent, at $34.84 a barrel by 10:54 am EST (1554 GMT), reaching a session low of $34.76. On Monday, WTI hit a seven-year low of $34.53.

Gold

Gold fell more than one percent on Thursday, as the dollar surged after the Federal Reserve increased US interest rates for the first time in nearly a decade and hinted at more increases in 2016.

The U.S. central bank raised the range of its benchmark interest rate by a quarter of a percentage point on Wednesday.

The move sent the dollar up to a twoweek high against a basket of leading currencies, while spot gold dipped as much as 1.3 percent to a session low of $1,058.44 an ounce and was down 1.2 percent at $1,059.76 by 1405 GMT, less than $15 above a near-six-year low hit earlier this month.

A stronger US currency makes gold more expensive for foreign holders.

“The hints of further rate hikes moved the dollar because the market had priced in 2-3 more rate hikes in 2016,” Citi strategist David Wilson said.

Gold has slumped nearly 10 percent this year, largely on uncertainty around the timing of the rise and on fears that higher rates would hit demand for the non-interest-paying metal.

“What we have seen this year in gold is largely going to continue but without the excitement of ‘will the Fed or won’t the Fed’,” ICBC Standard Bank analyst Tom Kendall said.