New York: Trades sparked by the Federal Reserve’s dovish tone partially unwound Thursday, as US stocks slumped after the best gain in two weeks and Treasury yields edged higher following an 11-point tumble. The dollar slipped.
The S&P 500 Index’s post-Fed rally ran out of steam after the index climbed within 0.5% of an all-time high. Health-care shares led declines. Treasuries fell amid steeper declines for UK bonds after the Bank of England (BOE) moved closer to raising rates. The pound advanced. Emerging-market equities surged the most since July on bets American growth will drive demand abroad. European shares rose after the Dutch election eased concerns about the rise of populism. Crude slipped below $49 a barrel.
The Fed raised its benchmark lending rate a quarter point without accelerating the timetable for future hikes. Chair Janet Yellen said in a press conference that the “simple message is the economy is doing well.” Investors anticipated the tightening and Treasury yields had climbed with the dollar on speculation the central bank might signal a faster pace of tightening. Those trades unwound late Wednesday as policy makers indicated they haven’t fallen behind with efforts to keep inflation in check.
“There was some uncertainty that they might signal that they feel behind the curve, and the answer was not,” Isabelle Mateos Y Lago, global macro strategist at BlackRock Investment Institute in Paris, said in an interview with Bloomberg TV’s Matt Millar. “Central banks are on a reasonably predictable path on both sides of the Atlantic now.”
Just hours after the Fed’s decision, the BOJ left its plans unchanged, increasing the policy divergence between the two central banks. China’s central bank raised borrowing costs as a stable economy and factory reflation give it scope to follow the US. The Swiss National Bank kept its deposit rate at an historic low and reaffirmed its threat to intervene to keep a lid on the franc. Turkey’s central bank raised a key interest rate to rein in inflation. Bloomberg