This article titled “Fed interest rate hike: Wall Street dip curtails celebrations – as it happened” was written by Graeme Wearden (until 3.30) and Nick Fletcher, for theguardian.com on Thursday 17th December 2015 17.53 UTC
Over in Athens there has been some commotion this afternoon between Greece and its creditors. Our correspondent Helena Smith reports:
In a highly embarrassing move, the leftist-led government has had to withdraw its much-touted “parallel economic program” – outlining measures to ease the debt-stricken country’s humanitarian crisis – under threat of having its next aid disbursement withheld. The program had been central to prime minister Alexis Tsipras’ promise that while his government had been forced to swallow the bitter pill of austerity – the price of being bailed out to the tune of €86bn this summer – harsh reforms would be offset with assistance for the most needy.
Almost immediately there was uproar.
Zoe Konstantopoulou, parliament’s erstwhile president, one of 25 MPs who broke away from Tsipras’ Syriza party this year, tweeted that Greece had a “puppet government” that was “dancing to the tune of lenders.” Others said it was yet another example of the leftist-led coalition being boxed into a corner.
Eurozone officials, who provisionally approved the €1bn aid instalment after the social measures were rescinded, said the funding would likely be disbursed Friday night. The disputed program would be reviewed in early January, they said, clarifying that Greece had failed to inform lenders of the cost of such measures.
On that note, we’ll close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
European shares close higher after Fed rate rise
With the Federal Reserve removing the uncertainty clouding markets by finally raising US interest rates, European markets responded favourably to the news. But an opening fall on Wall Street – which had surged in the immediate aftermath of Wednesday’s Fed move – took some of the shine off, and European shares ended off their best levels. The rise in the US dollar following the announcement of dearer borrowing costs hit commodity prices, with Brent crude down 0.5%, and left energy shares lower. The closing scores showed:
- The FTSE 100 added 41.35 points or 0.68% to 6102.54 having earlier risen as high as 6160
- Germany’s Dax jumped 2.57% to 10,738.12
- France’s Cac closed 1.14% higher at 4677.54
- Italy’s FTSE MIB rose 1.48% to 21,523.10
- Spain’s Ibex ended up 1.72% at 9878.5
- In Greece, the Athens market added 3.5% to 622.23
On Wall Street, the Dow Jones Industrial Average is currently down 130 points or 0.7%.
The IMF has commented on the Christine Lagarde situation:
IMF Communications Director Gerry Rice:“As we have said before, it would not be appropriate to comment on a case that has been and is currently before the French judiciary. However, the Executive Board continues to express its confidence in the Managing Director’s ability to effectively carry out her duties. The Board will continue to be briefed on this matter.”
Here’s the early take on Christine Lagarde facing trial:
Wall Street continues to decline, following its immediate rise on Wednesday after the US Federal Reserve raised interest rates and promised only gradual increases in future.
After a near 225 point increase in the wake of the Fed announcement, the Dow Jones Industrial Average is now down 61 points or 0.35%.
The US fall has taken (some of) the shine off European shares. The FTSE 100 is now 0.9% higher at 6116, down from the day’s peak of 6160. Germany’s Dax is up 2.8% at at 10765 having earlier touched 10829.
Updated at 3.46pm GMT
Christine Lagarde’s lawyer has told Reuters that he will recommend she appeals the decision to try her over the Bernard Tapie affair.
It looks like French journal Mediapart got the scoop about Christine Lagarde facing trial.
Here’s their story:
Lagarde ‘to face trial’ over Tapie affair
French media are reporting that the managing director of the International Monetary Fund, Christine Lagarde, is to face trial over the Tapie financial scandal that had dogged France.
Bernard Tapie is a businessman who received €403m in compensation from the French government, over the sale of Adidas in 1993.
Tapie, an ally of former president Nicholas Sarkozy, claimed to have been defrauded by the now-defunct Crédit Lyonnais bank over the affair. Sarkozy’s administration agreed the payment; Lagarde was finance minister at the time.
She has consistently denied any wrong-doing.
In August 2014 the IMF chief was played under investigation by magistrates, over charges of “simple negligence”.
Updated at 3.07pm GMT
That didn’t last long… the Dow is now down 30 points.
Wall Street opens higher
Shares are inching higher on Wall Street as traders returned to their desks in New York after yesterday’s excitement.
The Dow has gained 45 points (+0.25%) in the first few minutes of trading.
Updated at 2.44pm GMT
The latest weekly US unemployment figures are out.
And they don’t suggest that the Fed made a catastrophic error by raising borrowing costs last night.
The number of Americans filing new claims for jobless benefit fell last week, to 271,00. That’s 11,000 fewer than last week (which was a five-month high).
The initial jobless claims figure has been below 300,000 every week since early March, suggesting the labour market has been strengthening.
Janet Yellen may not receive Christmas cards from many gold bugs this year.
The gold price has dropped by over 1% today to $1,058 per ounce, hit by the stronger dollar following the rise in US interest rates.
Updated at 2.00pm GMT
This chart shows how the peso has caught up with reality…
Argentina’s peso plunges by 30%
Argentina’s currency has just slumped by 30% against the dollar as the government lifts foreign exchange controls that had kept it artificially high.
The peso is changing hands at 14 to the US dollar, from around 10 last night. That’s broadly in line with the black market rate; a scarcity of US dollars has meant Argentines have had to pay much more than the official exchange rate.
The decision to allow the peso to float free is one of the first moves by the new Buenos Aires government.
Finance minister Alfonso Prat-Gay said it was an important step towards revitalising the country’s economy and encouraging foreign investment:
His message was:
“He who wants to import will be able to do so, and he who wants to buy dollars will be able to buy them.”
The bulls are out on the Frankfurt stock exchange today:
Germany’s DAX index is galloping ahead today, up over 3%.
That’s a nine-day high, clawing back some of the losses since the European Central Bank disappointed investors with its latest stimulus package.
Mike van Dulken, head of research at Accendo Markets, says European traders are embracing last night’s Fed rate hike:
The decision to raise rates for the first time following almost a decade of crises and unconventional policy measures is being welcomed as much for its end to uncertainty as its vote of confidence in US economic recovery.
Has Yellen fired the starting pistol for a return to conventional policy and a delayed Santa Rally?
Updated at 1.14pm GMT
Investors are pushing up the prices of eurozone government bonds today, in another sign that the Fed rate hike is being taken well.
This has pushed down the yield (or interest rate) on debt issued by every major eurozone country, and also the UK:
The mini-rally shows traders aren’t panicking that central banks are going to tighten monetary policy aggressively.
Eric Vanraes, fixed income portfolio manager at EI Sturdza Investment Funds, explains (via Reuters)
“There were fears of a mistake from the Fed if it were too confident or too hawkish.”
But it was good news … so phew! We can go on the Christmas holiday. We can have a small rally everywhere.”
James Hughes, chief market analyst at trading company GKFX, captures the mood in the City:
Bloomberg is reporting that Martin Shkreli, the entrepreneur who attracted global opprobrium after he raised the price of an anti-infective drug by more than 5,000 percent, has been arrested on securities fraud charges:
Details are a little scarce, but here’s what they know so far:
Prosecutors charged him with illegally taking stock from Retrophin Inc., a biotechnology firm he started in 2011, and using it pay off debts from unrelated business dealings. He was later ousted from the company, where he’d been chief executive officer, and sued by its board.
In the case that closely tracks that suit, federal prosecutors accused Shkreli of engaging in a complicated shell game after his defunct hedge fund, MSMB Capital Management, lost millions. He is alleged to have made secret payoffs and set up sham consulting arrangements.
Spread-betting firms are predicting that the US stock market will hold onto yesterday’s gains.
The Dow Jones industrial average is expected to open 58 points higher, according to IG.
That would add to Wednesday’s 224-point jump, suggesting Wall Street is getting into the festive spirit. The huge Christmas tree outside the New York stock exchange may help…..
Photographers have been hard at work across Asia, capturing today’s market rally:
RBS: Fed may end up cutting rates
RBS has produced a handy chart showing how the markets are expecting US interest rates to rise much slower than in the past:
They also warn that emerging markets could be threatened if the Fed hikes aggressively, as they have built up higher debts in recent years.[That’s partly because ‘hot money’ has flooded out of the US in search of high returns]
But there’s also a danger that the Fed might be forced to cut rates if growth and inflation are weaker than forecast.
Updated at 11.09am GMT
After two hours of trading, European markets are holding onto their early gains.
The rally is particularly strong in Frankfurt and Paris; traders are welcoming the Federal Reserve’s confidence in the US economy, and its pledge to only raise rates gradually.
Alex Lydall, senior sales trader at Foenix Partners, says the Fed chair’s upbeat but sober pronouncements last night have gone down well:
A sigh of relief swept across financial markets as Janet Yellen confirmed months of speculation and hiked interest rates by 0.25% for the first time in nine years. A very measured statement proceeded, with an almost academic approach of both positivity and caution.
Here’s the picture:
- FTSE 100: up 86 points at 6147, + 1.4%
- German DAX: up 293 points at 10762, +2.8%
- French CAC: up 118 points at 2.55%
But commodity prices continue to suffer from the weaker dollar.
Updated at 10.07am GMT
UK retail sales smash forecasts
Here’s a surprise…. UK retail sales smashed expectations last month, as shoppers gorged on Black Friday bargains via the internet.
Retail sales jumped by 1.7% on the month, beating forecasts of 0.6%. They were 5% higher than in November 2014.
The Office for National Statistics reports that online sales jumped sharply.
- The value of online sales increased by 12.7% in November 2015 compared with November 2014 and by 4.9% compared with October 2015.
Shoppers also benefitted from falling prices, as retailers tried to drum up business:
- Average store prices (including petrol stations) fell by 3.3% in November 2015 compared with November 2014, the 17th consecutive month of year-on-year price falls.
Updated at 9.44am GMT
Breaking away from the Fed briefly, the latest survey from Germany shows that businesses are less optimistic this month.
The business climate index produced by the IFO institute fell to 108.7 points, down from 109.
The measure of the “current situation” slid to 112.8 points, down from 113.4 in November, meaning firms are finding conditions a bit tougher this month.
Today’s market rally may not last long, argues Michael Holland, managing director of ratings and research firm FE Trustnet:
After the pain of recent weeks, the current market rally will please many – but one suspects this is a bit of dead cat bounce. It should be seen more as a sigh of relief that something that was predicted actually followed through, rather than the markets are happy that the rate has been hiked.
Typically, interest rates going up is viewed negatively by the equity markets – because historically this means that they will see greater outflows as higher interest rates lure investors away.
The first Fed hike is the most exciting, but it still leaves borrowing costs very low in historical terms:
Updated at 9.24am GMT
Commodity prices are hitting fresh 17-year lows this morning, as the impact of the Fed rate hike ripples through the market.
Copper, zinc and oil are all suffering, pushing Bloomberg’s broad measure of commodity prices down towards record low levels:
This is partly due to the stronger US currency, which means you need fewer dollars to buy the same quantity of metal or crude.
It also reflects the impact on emerging market economies, who could suffer capital outflows as traders chase higher rates of return from US assets.
Pound weakens after Fed hike
The US dollar is strengthening this morning, sending it up against all the major currencies.
Last night’s rate hike makes the dollar more attractive to investors, as it offers a higher rate of return.
This has sent the British pound sliding by 0.5%, or nearly three quarters of a cent, this morning to $1.4925 – a two-week low.
Kit Juckes, global currency expert at french bank Société Générale, says a stronger dollar may actually allow the Fed to raise rates more cautiously in 2016:
The overnight reaction to the Fed rate hike has seen equity markets rally, oil prices remain very soft, commodity currencies fall back, and the dollar rally across the board.
I wanted a dollar dip to buy and so far, it’s just gone up. The focus will now be on the timing of the next Fed move, the pace thereafter, and the implications for commodity prices, capital flows out of emerging markets and China’s currency policy.
If the Fed raises rates by 1% next year – in line with the path implied by the FOMC’s forecasts – the dollar will be significantly stronger by December 2016. In practise, they’ll tighten less, in part because of further dollar strength.
European stock markets are a sea of green:
The fabled “Santa Rally” may be getting underway, now that the Fed rate decision is behind us.
But it’s still not been a vintage year. The FTSE 100 is down 6.3% since the start of 2015.
The French stock market has jumped by 2%, as the wave of post-Fed relief reaches Paris. Germany’s DAX is close behind. gaining 1.8%.
This is partly because the euro is losing ground against the US dollar, which is a boost to eurozone exporters:
Hearing the words “Fed hikes rates” is a new experience for anyone who joined the financial world after the crisis began:
Ben Brettell, senior economist at Hargreaves Lansdown, says:
“An interest rate rise is a new experience for much of Wall Street. A whole generation of traders have never known anything but the post-crisis world of ultra-low interest rates and, for the most part, rising asset prices. An estimated two-thirds of traders have never seen a full Fed tightening cycle.
Of course, some of us are old enough to have seen it all before….
FTSE 100 surges as “Christmas comes early” to the City
Boom! European stock markets are open, sending traders rushing to buy shares in the post-Fed rally.
In London the FTSE 100 index of major blue-chip share jumped 97 points, or 1.5%, at the start of trading. Every share was positive, as a pre-Christmas spirit broke out across the City.
Nearly every economists and analyst had expected a rate hike last night, so there’s relief that the Fed hasn’t dashed expectations.
And investors are also taking comfort in Janet Yellen’s pledge to only raise borrowing costs “gradually”
Robert Craig, private client investment manager at MB Capital, says this promise has delighted Wall Street and the City:
“While the equity markets are supposedly not the Fed’s primary concern, for the board to deliver anything other than a raise would have caused mayhem.
“As it was the expectedly dovish hike, and Janet Yellen’s frequent use of the word ‘gradual’ to describe the pace of future rises, came as a blessed relief to anxious stockwatchers.
“With the Dow rising steadily from the moment she first opened her mouth, the rosy picture she painted of the US economy and the absence of major overseas threats has sent markets surging with relief.
“In a press conference that was short on precision and long on pragmatism, the Fed left the door wide open to future changes in direction.
“But what is clear is that there will be no sudden spiral of further rate rises – and for stocks, Christmas has come early.”
Updated at 8.09am GMT
When might the Fed raise rates next?
The financial markets suggest that the next hike, from 0.5% to 0.75% might not come until June:
However, the people actually setting US interest rates are more hawkish. Last night’s forecasts show they expect interest rates to be 1.4% by the end of next year – implying four quarter-point rate hikes.
The Guardian’s editorial writers aren’t impressed by last night’s rate hike, calling it “risky and premature”.
It is reassuring for America to feel like it is back in familiar waters – until it transpires that it is not. The quarter-point rate rise addresses one potentially serious problem, but does so in the wrong way. QE dollars have puffed up the price of some assets, and if that puffing goes unchecked, the next bubble and bust could begin. The right way to tackle speculative investment, however, is through targeted regulatory curbs on lending for speculative purposes, not by raising borrowing costs for all investments, including those that America needs.
The justification for higher rates should be a real economy moving at an unsustainable pelt. There’s no sign of that.
We’re not alone either – the Financial Times’ front page calls it a “historic gamble”:
Apart from anything else, traders are simply relieved that the long prevarication over when US interest rates will rise has ended.
Our economics editor Larry Elliott explains:
The quarter-point increase in borrowing costs could hardly be called a spur of the moment decision. On the contrary, the Fed has shown Hamlet-like indecision this year as it has weighed up the pros and cons of abandoning the zero interest rate policy that has been in force for the past seven years.
Now, as Julius Caesar said when he crossed the Rubicon (with rather less dithering), the die is cast. The move is intended to signal that interest rates in the US will eventually return to normal.
But not for some time, for this was – in the jargon of Wall Street – a dovish hike in interest rates. That sounds like an oxymoron, but means that the US central bank will take its time before moving again.
Asian markets jump
Asian markets have picked up the baton from Wall Street, with shares jumping in Tokyo, Shanghai and beyond.
Japan’s Nikkei jumped strongly, closing 1.6% higher, as investors took the long-awaited quarter-point rate hike in their strike. China’s main market gained almost 2%, in a wide relief rally:
FXTM research analyst Lukman Otunuga says:
Confidence in the global economy received an uplift last night following the Federal Reserve’s unanimous decision to finally raise US interest rates for the first time in almost a decade.
The Dollar was installed with some bullish momentum across the global currency markets, however it was repeated on several occasions as expected that future rate rises will be gradual.
But the Fed hasn’t brought any relief to the oil market – crudes price dipped overnight, with Brent crude hovering around $37.30 per barrel
Introduction: Shares surge after Fed decision
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
What was all the fuss about, eh? After all the speculation and angst about higher US interest rates, financial markets are taking last night’s historic move in their stride.
Shares have jumped in Asia overnight, and Europe is heading for a strong open in an hour’s time. Spread-betting firm IG predicts that the main indices will all gain at least 1%.
This follows a strong day’s trading on Wall Street last night, where the Dow Jones closed up 224 points.
The end of the “extraordinary period” of near-zero interest rates is being welcomed by investors. Crucially, Janet Yellen’s pledge that future rate rises will be gradual (a word she repeated many times last night) is calming traders’ nerves.
Yellen’s optimism over the prospects for the US economy is also cheering investors; the mood in the City is turning away from the Fed and towards Christmas.
Except, of course, its not that simple.
Fed policymakers are still forecasting that rates will rise faster than the markets expect – which could create uncertainty in 2016.
Rhys Herbert, senior economist for Lloyds Bank Commercial Banking, explains:
Whilst the Fed has reinforced its message that subsequent rises will take place gradually, the FOMC’s interest rate forecasts continue to point to a faster rate of tightening than is implied by market pricing, leaving room for considerable asset price volatility if economic developments continue along the lines that the FOMC currently expect.
How this gap between market and FOMC expectations closes will determine how financial markets behave over the coming year.”
It will take weeks for capital markets and foreign exchange rates to adjust to to the end of the ZIRP era (zero interest rate policy), and possibly years until we know whether Janet Yellen and colleagues made an astute call or a serious blunder yesterday.
Bernie Sanders, the Democratic presidential candidate, has already called it “Bad News For Working Families”. Commercial banks have wasted no time in raising their borrowing rates, meaning Christmas will be a little tighter for some…
Also coming up today…
There could be drama in Argentina, as the government ends currency controls.
The peso is likely to plunge sharply, as finance minister Alfonso Prat-Gay tries to stimulate the economy and encourage foreign investment.
And in Europe, we get the latest UK retail sales figures (at 9.30am GMT), plus the IFO survey of German business confidence (at 9am).
Updated at 7.24am GMT
guardian.co.uk © Guardian News & Media Limited 2010