Pedestrians crossing the road are reflected in an electronic stock board outside a securities firm in Tokyo, Japan. (Photographer: Noriko Hayashi/Bloomberg)

Stocks Whipsaw Investors After Powell Rate Hike: Markets Wrap

(Bloomberg) -- U.S. stocks fell, while the dollar tumbled and Treasuries gained after the Federal Reserve’s first decision under Chairman Jerome Powell came in less hawkish than some investors had been anticipating.

Following a whipsaw session, the S&P 500 closed lower as the central bank raised rates and signaled it will do so two more times this year as the economy continues to pick up speed. Treasuries briefly erased gains before turning higher, sending rates lower amid relief that the Fed isn’t spoiling to increase the pace of tightening. The dollar added to losses sparked when the U.S. made concessions in trade talks with its neighbors.

Stocks Whipsaw Investors After Powell Rate Hike: Markets Wrap

The Fed raised the benchmark lending rate a quarter-point and forecast a steeper path of hikes in 2019 and 2020, citing an improving economic outlook. Powell did little to rattle markets during his first press conference at the helm of the central bank, downplaying the individual forecasts from policy officials. His basic message was that the fiscal policies will continue to improve economic growth without an outsize increase in inflation.

“Despite speculation that the Fed might signal a more aggressive approach to tightening monetary policy this year, the projection of three rate hikes in 2018 is in line with expectations,” Bob Baur, chief global economist at Principal Global Investors, which manages $445 billion, said in an email. “All of the salient economic and market data supports the Fed’s decision to maintain the status quo.”

The vote to lift the federal funds rate target range to 1.5 percent to 1.75 percent was a unanimous 8-0. In the forecasts, U.S. central bankers projected a median federal funds rate of 2.9 percent by the end of 2019, implying three rate increases next year, compared with two 2019 moves seen in the last round of forecasts in December. They saw rates at 3.4 percent in 2020, up from 3.1 percent in December, according to the median estimate.

Energy producers led earlier gains in the major U.S. benchmarks, with trading about 20 percent below the 30-day average as a snowstorm battered New York. An index tracking the dollar’s value against trading partners earlier dropped the most in two weeks, with Canada’s dollar and Mexico’s peso surging after some concessions in trade talks.

Terminal users can read more in our markets blog.

Here are some key events on the schedule this week:

  • The Bank of England is expected to keep interest rates and its asset-purchase program unchanged on Thursday. Attention will be on language and the odds for a May hike.
  • New Zealand has a monetary policy decision Thursday.

And these are the main moves in markets:

Stocks

  • The S&P 500 Index fell 0.2 percent as of 4:09 p.m. New York time, while the Dow Jones Industrial Average dropped 0.2 percent and the Nasdaq Composite Index dipped 0.3 percent.
  • The Stoxx Europe 600 Index fell 0.2 percent and the MSCI Asia Pacific Index decreased 0.1 percent.
  • The U.K.’s FTSE 100 Index dipped 0.3 percent, after touching the lowest in 15 months.
  • The MSCI Emerging Market Index rose 0.3 percent.

Currencies

  • The Bloomberg Dollar Spot Index declined 0.9 percent, the largest drop since January.
  • The euro advanced 0.8 percent to $1.2340.
  • The British pound jumped 1.1 percent to $1.4145.
  • The Japanese yen gained 0.6 percent to 105.91 per dollar.
  • The MSCI Emerging Markets Currency Index rose 0.1 percent.

Bonds

  • The yield on 10-year Treasuries fell one basis point to 2.88 percent, while two-year yields dropped five basis points to 2.30 percent.
  • Germany’s 10-year yield advanced one basis point to 0.59 percent, the highest in more than a week.
  • Britain’s 10-year yield climbed four basis points to 1.53 percent, close to the highest in more than three weeks on the largest increase in more than three weeks.

Commodities

  • West Texas Intermediate crude increased 3 percent to $65.50 a barrel, the highest in almost seven weeks.
  • Gold rose 1.9 percent to $1,325.51 an ounce, the biggest rise since May 2017. 

©2018 Bloomberg L.P.