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Dec 15, 2016

Bloomberg | European Markets - December 14, 2016, 6:15 PM GMT-5 December 15, 2016, 3:45 AM GMT-5 : European Stocks Gain as Hawkish Fed Boosts Dollar; Bond Slide

bloomberg.com
 
Emma O'Brien @ek_obrien More stories by Emma O'Brien
  • Fed tips more 2017 rate hikes than were forecast in September
  • European equities open higher after most Asian shares dropped

The dollar was the chief beneficiary of the Federal Reserve’s first and only interest-rate hike of 2016, rallying to a 10-month high against the yen after officials signaled a steeper path for borrowing costs. European equities climbed while bonds slumped.
The greenback extended its advance against major and emerging-market peers. Japanese shares rose as the yen fell, while equities in Australia, China and Singapore slid and crude oil pared losses. Government debt tracked a rout in Treasuries, with U.K. 10-year gilt yields reaching the highest since May. The South African rand slumped, as did the Korean won. China’s 10-year government bond yield headed for its biggest one-day increase and the yuan fell the most in a month.
The second U.S. rate increase in a decade tied off a volatile 2016 for markets. The year opened with investors whipsawed by ructions in Chinese trading and Japanese monetary policy, followed by shock election results for Brexit and Donald Trump. The Fed moving further into tightening territory helps shift the focus away from global central-bank policy and toward fiscal stimulus, with Trump expected to stoke U.S. growth through spending. After hiking by 25 basis points, U.S. policy makers expect three rate increases in 2017, up from the two seen in September. Still, Fed Chair Janet Yellen sought to downplay the significance of that shift at a presser after the decision.
“The fact that 11 of 17 voting members are calling for at least three rate hikes in 2017 reverberated around trading floors,” said Chris Weston, chief market strategist in Melbourne at IG Ltd. “Keep an eye on China as the strength of the dollar is not going to be welcomed by the Chinese corporates who have to borrow from debt markets to fund much of the recently announced acquisitions.”
Currencies
  • The yen fell 0.7 percent to 117.83 per dollar as of 8:33 a.m. London time, extending losses and touching its weakest level since Feb. 4.  
  • The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was up 0.4 percent after Wednesday’s 1.1 percent jump. The euro fell 0.5 percent.
  • The Fed lifted its target for overnight borrowing costs by 25 basis points, or 0.25 percentage point, on Wednesday to a range of 0.5 percent to 0.75 percent.
  • “This is a very modest adjustment in the path of the federal funds rate,” Yellen said during the press conference. The decision to raise rates is “a vote of confidence in the economy,” she said, noting that some Fed officials, but not all, incorporated the assumption of a change in fiscal policies when making their forecasts.
  • The won slipped as much as 1.1 percent, while the onshore yuan was down 0.4 percent after China’s central bank weakened its fixing by the most since August.
  • The rand tumbled 1.1 percent while the Turkish lira rebounded 0.2 percent
Stocks
  • The Stoxx Europe 600 Index advanced 0.4 percent as German and French equities climbed. 
  • Futures on the S&P 500 Index were little changed after the gauge suffered its steepest drop since October on the back of the Fed’s decision.
  • The MSCI Asia Pacific Index sank 1.7 percent, the most since Nov. 9, even as the weaker yen’s boost to exporters allowed Japan’s Topix index to climb 0.3 percent.
  • Australia’s S&P/ASX 200 Index lost 0.8 percent as energy and mining stocks led declines, while China’s CSI 300 Index slipped 1.1 percent.
Bonds
  • Yields on 10-year Treasury notes rose three basis points to 2.60 percent, touching their highest level since September 2014.
  • China’s 10-year sovereign yield surged 22 basis points to 3.45 percent, set for a record increase on a closing basis, as a plunging yuan and hawkish Fed comments damped expectations of monetary easing in China.
  • Yields on similar maturity Australian debt increased nine basis points to 2.88 percent.
  • Ten-year Japanese yields climbed 3 1/2 basis points to 0.085 percent.
Commodities
  • West Texas Intermediate crude was up 0.2 percent at $51.16 a barrel, after Wednesday’s 3.7 percent slide.
  • Gold for immediate delivery was down 0.6 percent to $1,136.66 an ounce, after sliding to its lowest price since February.
  • “The FOMC was upbeat and more hawkish than anticipated,” strategists at Australia & New Zealand Banking Group Ltd. said in a note, referring to the rate-setting Federal Open Market Committee.
  • Lead climbed 1.6 percent in London.