Fed rate decision leaves markets bruised
Dollar falls vs Sterling and Euro on Fed comments
The Federal Reserve’s decision to raise rates by 25 basis points, though expected, still sent the US stock markets into a tailspin on expectations that it would slow down the US economy more than traders would have liked. US central bankers also indicated that they expect to raise rates next year only two more times rather than the previously expected three while they lowered expectations for growth and inflation in 2019.
Sterling and the euro were the surprising gainers of the Fed’s decision, both gaining ground against the greenback although the pound weakened against the euro. The day may prove supportive of the pound as for the first time a cabinet minister touted the option of a second referendum saying that it was preferable to a no-deal Brexit. It now remains to be seen if the rest of the cabinet and Parliament runs with the idea.
US, China set time for talks
Had it not been for the Fed dominated headlines, news that the US and Chinese negotiators are making plans to meet face to face in January to talk trade would have been supportive of the market but was lost in the general post Fed gloom. However, once the rate cloud clears this will be supportive of US and European shares as now both sides seem keen to have an agreement in place by 1 March deadline when the current tariff truce runs out.
Oil drops nearly 3%
Brent crude has lost 2.9% in early trade on concerns that US demand will decline if the economy there starts weakening next year and on concerns that the US China trade dispute will continue to affect Chinese demand. It will be hard for oil to turn the corner while US equities are falling but if the US stock markets stabilise Brent and WTI could also settle on a flat or a marginally upward trajectory.
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