World stocks hit record peak after Fed raises rates and dollar slides

PUBLISHED : Thursday, 14 December, 2017, 7:46am
UPDATED : Thursday, 14 December, 2017, 7:46am

A gauge of world shares rose to record highs after the Federal Reserve announced a widely expected interest rate increase on Wednesday, while US Treasury yields and the dollar fell.

MSCI’s gauge of stocks across the globe gained 0.28 per cent.

The Dow Jones Industrial Average rose 80.63 points, or 0.33 per cent, to end at 24,585.43, the S&P 500 lost 1.26 points, or 0.05 per cent, to 2,662.85 and the Nasdaq Composite added 13.48 points, or 0.2 per cent, to 6,875.80.

The pan-European FTSEurofirst 300 index closed down 0.30 per cent.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.67 per cent.

The Fed, as anticipated, raised interest rates by a quarter of a percentage point, but left its rate outlook for the coming years unchanged. The central bank lifted the federal funds rate to a target range of 1.25 to 1.50 per cent, and also projected three more hikes each in 2018 and 2019.

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Kate Warne, investment strategist at Edward Jones in St Louis, said the Fed’s statement was “pretty much as expected” but slightly more dovish.

“So it’s not a big surprise but it’s a shift in the direction of saying the Fed is going to keep watching the data and if we don’t see higher inflation we could see fewer rate hikes in 2018,” Warne said.

While the Dow and the Nasdaq Composite closed higher, the S&P 500 dipped under pressure from the financial sector after the Fed’s announcement.

Investors were also focused on efforts by President Donald Trump’s administration to overhaul the US tax system. Congressional Republicans reached a tax legislation deal on Wednesday, according to Senate Finance Committee Chairman Orrin Hatch.

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“The news appears to be good,” said Tom Cahill of Ventura Wealth Management. “Congress is moving to an adoption of the tax cuts. The Fed indicated the economy is growing fast.”

US Treasury yields fell after the Fed’s announcement. Yields had fallen earlier in the day as well after an increase in core consumer prices in November fell short of analysts’ expectations.

Benchmark 10-year notes last rose 16/32 in price to yield 2.3457 per cent, compared with 2.403 per cent late on Tuesday. The 30-year bond last rose 1-2/32 in price to yield 2.7285 per cent, compared with 2.781 per cent late on Tuesday.

The US consumer price index, the government’s broadest inflation gauge, grew 0.4 per cent last month, matching economists’ estimates. However the CPI core rate, which excludes energy and food prices, moderated to 0.1 per cent from a 0.2 per cent increase in October and was below market expectations.

Traders also mulled the potential implications of Democrat Doug Jones’ victory in the special US Senate election in Alabama on Tuesday, which thinned the Republicans’ Senate majority to 51-49, raising discussion about their ability to pass tax legislation before year-end.

The dollar index which weighs it against a basket of currencies, fell 0.72 per cent, while the euro was up 0.71 per cent to US$1.1823.

The yen strengthened 0.92 per cent to 112.50 per dollar, while sterling was last trading at US$1.3416, up 0.76 per cent on the day.

US crude fell 0.72 per cent to US$56.73 per barrel and Brent was last at US$62.59, down 1.18 per cent.

Gold prices rose later in the day after hovering near their lowest in nearly five months. Spot gold was last 1.0 per cent higher at US$1,255.93 an ounce.

With additional reporting from Agence France-Presse