Hawkish Fed dampens global equities
Fed comes in the way of any possibility of a Santa rally
Dubai: Equity traders went in a risk-off mode on Thursday on expectations of two rate hikes by the US Federal Reserve amid fears of a slowdown in global growth, dashing any possibility of a year-end rally.
The Federal Reserve increased the key funds rate by 25 basis point, its fourth in 2018, and the ninth hike since the tightening cycle started in December 2015, and the central bank expect two more hikes next year, with analysts questioning the need for further hikes looking at a slowdown in the US due to trade war in the backdrop of twin deficits and waning impact of tax cuts.
US stocks fell at open on Thursday, extending losses from the previous session.
The Dow Jones Industrial Average fell 99.54 points, or 0.43 per cent, at the open to 23,224.12.
The S&P 500 opened lower by 10.19 points, or 0.41 per cent, at 2,496.77. The Nasdaq Composite dropped 29.07 points, or 0.44 per cent, to 6,607.76 at the opening bell.
“We find our selves wedged between a data-dependent Fed and a very uncertain outlook from the PBOC (People’s Bank of China) on the stimulus front as the 90-day trade truce looms ominously in the not-so-distant future. If you wrap this with the global growth slowdown, there is hardly a sliver of optimism for equity investors to hang their hat on,” said Stephen Innes, Head of Trading APAC at OANDA in Singapore. Fed chair Jerome Powell lowered his inflation and growth forecast and said the central bank was satisfied with its programme to reduce the balance sheet and has no plans to change it, making traders nervous.
“These forecasts point towards moderate growth, with moderate inflation pressure, just in line with target and with the beginning of a less healthy job market. This describes an orderly slowdown, which should justify just only limited further rate hikes,” said Patrice Gautry, Chief Economist at Union Bancaire Privée said. In Europe, Stoxx Europe 600 Index was down 0.96 per cent at 338.23.
Shy away:
Central banks in Asia shied away from hiking rates after the US move because of growth concerns fanned by trade war amid their weaker currencies.
The Asia Dow Index was 0.82 per cent lower at 3,120.47. The NIKKEI 225 Index was 2.84 per cent lower at 20,392.58. “The decision to raise interest rates by 25 basis points was widely anticipated and priced in most asset classes, so it is not the rate hike itself that upset investors. Investors were expecting a more dovish tone from Powell given the sharp fall in equity markets and challenging global macroeconomic conditions. All they got was a less hawkish tone,” Hussein Sayed, Chief Market Strategist at FXTM said.
The dollar index reversed its trend to trade weaker. The dollar index was down 0.63 per cent to be at 96.36. Gold futures on Comex, which benefits in period of uncertainty, was also up 0.30 per cent at $1,259.90 an ounce.