US stocks rallied for the third session in a row after Federal Reserve raised interest rates for the first time since 2006. The dollar weakened with the live dollar index showing the ICE US dollar index, a measure of the dollar’s strength against a basket of six currencies, fell 0.3% to 97.871. The Federal Reserve raised the target range of its federal funds rate by 25 basis points to 0.25%-to-0.50% while inflation hasn’t reached the 2% target. The increase in the key interest rate was widely anticipated and the weakening of the dollar was the result of the central bank statement seen as dovish by market participants as it stressed the gradual path of rate hikes and their dependency on economic data. The Fed’s “dot plot,” a collection of official forecasts about the pace of rate hikes, suggested that the Fed will raise rates four times in 2016, and Fed Chair Janet Yellen said that the hikes wouldn’t be “equally spaced.” The Dow Jones Industrial Average rose 1.3% and the Nasdaq Composite added 1.5%. The S&P 500 rallied 1.5% with nine of ten major sectors trading higher as utilities and telecoms led the gainers. Energy shares sold off as oil prices closed sharply lower. Today at 14:30 CET initial jobless claims and unemployment claims will be released in US. The tentative outlook is positive. At the same time Philadelphia Fed Manufacturing Index for December will be published. And at 16:00 CET December Leading Indicators will be published by Conference Board Inc. The tentative outlook is negative.
European stock markets ended higher on Wednesday ahead of Federal Reserve’s interest rate decision. Investors were cautious awaiting an expected interest rate hike announcement by the Federal Reserve at conclusion of its two-day policy meeting. The Stoxx Europe 600 index edged 0.2% higher, with both Germany’s DAX 30 index and France’s CAC 40 index gaining 0.2%. Greek shares outperformed as they rose 3% after the Greek parliament approved reforms demanded by the country's international lenders. In economic news, the final reading of euro-zone inflation for November rose 0.2% against the initial estimate of 0.1% and the flash euro-zone composite purchasing-manager index for December fell to a two-month low of 54.0, while the manufacturing reading rose to a 20-month high at 53.1. Today at 10:00 CET German Ifo Business Climate Index for December and ECB Economic Bulletin will be released. The tentative outlook is positive for euro.
Nikkei rose 1.6% today to more than one-week high at 19,353.56 as investor confidence was bolstered after the Federal Reserve raised the interest rates, interpreted as a sign that US economy has recovered, and a gradual path of future hikes was indicated.
Oil futures prices are extending losses today after slumping on Wednesday following a surprise 4.8 million-barrel jump in US crude inventories and interest rate hike by the Federal Reserve. January WTI crude sank 4.9% to $35.52 a barrel on the New York Mercantile Exchange, and January Brent crude dropped 3.3% to $37.19 a barrel on London’s ICE Futures exchange on its expiration day.
Gold is edging lower today after closing higher on Wednesday with spot gold ending up 1.2%. The Federal Reserve rate forecast, the dot points, indicated policy makers expect 1% increase in interest rates next year. Higher interest rates and strong dollar negatively impact the demand for non-interest rate paying gold.