Global Stocks, US Dollar Climb as US Fed Lifts Rates

Stocks rally as Fed hikes rates but emphasises gradual path of rate increases in 2016.

• Stocks rally as Fed hikes rates, emphasises gradual path
  
• Futures markets pricing in very slow pace of tightening
  
• Dollar gains as others remain in easing mode, yuan slips
  
• Oil nursing losses as supply glut lingers
  

Asian stock markets jumped as investors chose to take an historic hike in US interest rates as a mark of confidence in the world’s largest economy, lifting the dollar and piling on the pain for oil prices.

The Federal Reserve’s 25-basis-point increase was almost a decade in the making and easily one of the most telegraphed in history. So there was some relief that, after months of waiting and several false starts, the move was finally done and dusted.

The Fed will be absolutely delighted with the lack of volatility across all asset classes. Nothing here to change a view that we can have a moderate ‘risk-positive rallyette’, even if the probability of a March hike is significantly higher than priced.

Alan Ruskin, Global Head of Forex, Deutsche

Japan’s Nikkei added 2.4 percent, on top of Tuesday’s 2.6 percent advance while Shanghai put on 1.1 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan firmed 0.9 percent.

On Wall Street, the Dow ended Wednesday with gains of 1.28 percent, while the S&P 500 rose 1.45 percent and the Nasdaq 1.52 percent.

Markets were soothed by Fed Chair Janet Yellen’s assurance that future tightening would be “gradual” and dependent on inflation finally moving higher as long forecasted.

The rate forecasts, or dot points, from Fed members were a little higher than many expected with 100 basis points of hikes pencilled in for next year and a terminal rate of 3.5 percent.

The dollar added 0.9 percent to 98.839 against a basket of major currencies, and looked set for another test of stiff resistance around the 100.00 mark.

The euro dropped to $1.0848 having fallen from $1.1000 in the wake of the Fed’s statement, while the dollar advanced to 122.57 yen.

Richard Franulovich, a currency strategist at Westpac, noted that historically the dollar tended to soften during the start of Fed tightening cycles. Yet he doubted it would last given most other major central banks were very much in easing mode.

A follow-up Fed hike could come as soon as March, aided and abetted by favourable oil price base-effects that will lift inflation almost a percentage point and a potentially mild winter. We should see a resumption of the dollar’s longer term uptrend as 2016 progresses.

Richard Franulovich, Currency Strategist, Westpac

Such an outcome would spell further trouble for commodities, making them more expensive when measured in other currencies.

Oil prices were subdued having resumed their decline on Wednesday to lose as much as 5 percent after US government data showed a big, surprise build in crude inventories.

Brent eased another 10 cents to $37.27 a barrel, after shedding $1.16 on Wednesday. US crude inched up 2 cents to $35.54 but that followed a loss of 4.9 percent the day before.