Wall Street, global stocks dip as investors weigh US interest rate rise in December

Stock markets around the world fell and bond yields rose as investors weighed the implications that a US interest rate rise before the end of the year would have for the global economy and markets.

The Federal Reserve, which kept its rates on hold as expected on Wednesday, took the unusual step of strengthening its language about timing in its statement, making it clear that a December rate hike was still possible. The Fed also removed a previous warning about slowing global growth.

Wall Street edged lower, giving up some of Wednesday’s gains. The US stock market initially reacted negatively to the Fed statement, but later reversed course to end near the day’s highs on Wednesday, and Thursday’s losses were relatively slim.

The Dow Jones industrial average fell 23.72 points, or 0.13 per cent, to 17,755.80, the S&P 500 lost 0.94 point, or 0.04 per cent, to 2,089.41 and the Nasdaq Composite dropped 21.42 points, or 0.42 per cent, to 5,074.27.

US Treasury yields continued Wednesday’s rise after the Fed explicitly referred in its statement at the end of its two-day policy meeting to conditions necessary “to raise the target range at its next meeting”. Reference to a particular meeting is rare for the Fed.

The benchmark 10-year Treasury yield rose 8 basis points to 2.17 per cent. The two-year note’s yield was 0.73 per cent, highest since late September.

The MSCI All-Country World Index has recovered most of the losses that occurred beginning in mid-August on worries about slowed worldwide demand and the Fed’s plans. It ended down 0.55 per cent on Thursday.

The first estimate of third quarter US growth, released on Thursday, showed the world’s biggest economy expanded at a 1.5 per cent annualised pace, below the expected 1.6 per cent. But economists expect growth to pick up in the fourth quarter, given strong consumer spending figures.

“The (GDP) number may be good enough for the Fed to not view the economy negatively,” Collin Martin, director of fixed income at Schwab Center for Financial Research in New York.

In Europe the pan-European FTSEurofirst 300 index was down 0.04 per cent at 1,484 points. Japan’s Nikkei share average gained 0.2 per cent to close at 18,935.71.

Many investors are still not convinced about a rate lift-off given a recent run of soft US data, making economic releases in coming weeks more crucial in determining a December move.

Economists expect a key US manufacturing index due Monday to show the first contraction in the sector in 2-1/2 years, which would not be conducive for a rate hike.

The dollar gave back earlier gains, with the euro trading 0.5 per cent higher on the day at $1.0977, having skidded to a 2-1/2 month low of $1.0826 overnight.

Crude oil futures were slightly higher one day after soaring more than 6 per cent as the US government reported an inventory build. US crude rose 12 cents to US$46.06 a barrel. Brent was down 48 cents to $48.57. Spot gold fell 2.6 per cent to $1,145 an ounce.