An initial stock market surge after the US Federal Reserve raised interest rates for the first time in nearly a decade ran out of steam after an opening fall on Wall Street.
European shares managed to end the day in positive territory, but closed off their best levels as the US central bank sanctioned a 0.25% rise in borrowing costs, signalling an end to the low interest rate environment which has prevailed since the financial crisis in 2008.
On the whole, investors welcomed the rise because it removed the uncertainty that had been clouding the markets ever since the Fed unexpectedly kept rates on hold in September. They were also placated by Fed chair Janet Yellen’s comments that any future rises would be gradual and dependent on future economic data.
The FTSE 100 finished up 41.35 points or 0.68% at 6102.54, having climbed to 6,160 earlier in the day. Germany’s Dax ended up 2.57% at 10,738 after reaching 10,829, while France’s Cac closed 1.14% higher at 4677.54, down from its peak of 4,748.
But on Wall Street, the Dow Jones Industrial Average, which jumped nearly 225 points after Wednesday’s interest rate decision, was down 153 points, or 0.86%, by lunchtime, partly due to another drop in commodity prices.
The decision to raise interest rates pushed the dollar higher against other major currencies, with the pound down nearly 1% at $1.4877, its lowest level since mid-April. Despite better than expected UK retail sales, economists believe the Bank of England is in no hurry to follow the Fed by raising interest rates in the immediate future.
The rise in the US currency helped push commodity prices lower, with Brent crude falling to $36.94, before it recovered to $37.26, down 0.35%. Investors continue to be concerned about oversupply, with the prospect of Iranian oil coming onto the market as sanctions are lifted.
In turn, this put pressure on energy companies, with Chevron one of the biggest fallers on Wall Street. Tony Cross, market analyst at Trustnet Direct, said: “The announcement by the Fed was certainly well received in the short term, but sentiment started to turn a little as the session drew to a close. Yes, the decision by Janet Yellen to make the move is a sign of confidence in the economy, but equally this has pushed the dollar higher, adding yet more pressure to commodity prices.
“Gold is threatening to settle at its lowest level in six years, whilst crude oil is once again eyeing $35 a barrel. Although Euroepan markets may be closing ahead, Wall Street is tracking lower and rather than being the catalyst for what some would try to claim as being a Santa rally – despite starting from a low base – Ms Yellen is increasingly looking like she might be seen by some as the central banker who stole Christmas.”
The Fed’s rate decision, partly based on the strengthening employment market, was backed by figures showing that the number of Americans filing new claims for jobless benefit fell last week, to 271,00 – 11,000 fewer than the previous week.
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