US stocks slip and dollar trims losses as markets digest Fed raising rates as expected

PUBLISHED : Thursday, 15 June, 2017, 7:27am
UPDATED : Thursday, 15 June, 2017, 7:55am

US stocks mostly fell while the dollar cut its losses on Wednesday after the Federal Reserve delivered a widely expected US interest rate hike.

A slide in technology stocks weighed on the Nasdaq and S&P 500 as investors worried about the pace of economic growth after the rate increase and weaker-than-expected inflation data.

The US central bank lifted the benchmark lending rate by a quarter percentage point and announced it would begin cutting its huge holdings of bonds and securities this year.

Its policy-setting committee also indicated the economy has been expanding moderately, and that it viewed a recent softness in inflation as transitory, according to a statement following a two-day meeting.

Federal Reserve, as expected, raises US interest rates by 25 bp

The Dow Jones Industrial Average was up 46.09 points, or 0.22 per cent, to end at 21,374.56, the S&P 500 lost 2.43 points, or 0.10 per cent, to 2,437.92 and the Nasdaq Composite dropped 25.48 points, or 0.41 per cent, to 6,194.89.

The pan-European FTSEurofirst 300 index lost 0.35 per cent and MSCI’s gauge of stocks across the globe gained 0.12 per cent.

“It just looks like the Fed is sticking to their story and the market remains highly sceptical that the Fed is going to be able to deliver just based upon underlying data. I would think that at some point the market is going to be pricing in even greater risks that the Fed might be moving too quickly,” said Mark Cabana, head of US short rates strategy at Bank of America Merrill Lynch in New York.

Though they remained lower on the day, US Treasury yields pared declines, with traders citing the hawkish tone of the statement. Data earlier Wednesday showed US consumer prices unexpectedly fell in May, suggesting a softening in domestic demand.

The US yield curve flattened, with the difference between short-dated two-year Treasury yields and benchmark 10-year yields narrowing to a difference of 78.58 basis points , the smallest since September 9.

Benchmark 10-year US Treasury notes rose 23/32 in price to yield 2.1273 per cent, from 2.207 per cent late on Tuesday. The dollar index was last down 0.06 per cent, with the euro unchanged at US$1.1214.

Crude oil prices fell sharply following an unexpectedly large buildup in gasoline stocks. That weighed heavily on US energy sector shares, which contributed to the S&P 500’s decline.

US crude fell 3.7 per cent to settle at US$44.73 per barrel and Brent settled at US$47.00, down 3.5 per cent.

Gold turned negative after the Fed rate increase. Spot gold fell 0.2 per cent at US$1,263.03 an ounce.