Markets tumble as Fed leaves door open for rate hike

US stocks fell on Wednesday after the Federal Reserve in a statement following its two-day policy meeting did not rule out raising interest rates at its next meeting in June. The S&P 500 and Dow Jones Industrial Average lost 0.4%. The central bank acknowledged that the US economy slowed in winter as evidenced by much weaker than anticipated GDP growth in the first quarter at 0.2% annualized pace instead of 1% anticipated growth. The GDP slowdown was largely the result of slowdown in business investment and exports due to lower oil prices and stronger dollar. The Fed attributed the slowdown to transitory facts and said it expects the US economy to rebound. Disappointing economic reports in the past months have led market participants to believe that the first rate hike since 2006 will come not in June but later in the year. The dollar hit a nine-week low on Wednesday against a basket of currencies. Today at 14:30 CET Initial Jobless Claims will be released in US. The tentative outlook is positive for the dollar. At the same time Personal Income, Personal Spending and Personal Consumption Expenditures for March will be released. At 14:45 CET April Chicago PMI will be released. The tentative outlook is positive.

European stocks fell sharply as weaker than expected US economic growth in the first quarter, disappointing corporate reports and stronger euro weighed on market sentiment. Euro rose sharply against the dollar as disappointing US GDP growth report fueled expectations the Fed will not be in a hurry to hike interest rates. The euro has gained more than 6% against the dollar since it fell below $1.05 in mid-March. The Stoxx Europe 600 fell 2.2%. Germany’s DAX 30 fell 3.2%, suffering the largest percentage decline since March 2014. Export oriented German economy has benefited from weaker euro, and stronger euro means lower export earnings for German companies. Volkswagen AG shares lost 3.2% notwithstanding the earnings report of 19% rise in first-quarter profits. Belgian food retailer Delhaize Group SA shares tumbled 8% after the first-quarter earnings report indicated operating profits were below expectations. The European Central Bank raised the cap on its emergency liquidity assistance for Greek banks by 1.4 billion euros to 76.9 billion euros. Today at 10:00 CET April Consumer Price Index and March Unemployment Rate will be released in euro-zone. The tentative outlook is positive.

Nikkei slumped 2.7% today, posting the biggest loss in 4 months as investors locked in gains after weak US growth data and decision by the Bank of Japan not to expand its monetary stimulus program. Tomorrow at 00:30 CET March Consumer Price Index, Jobless Rate and Household spending will be published in Japan. At 0:500 CET financial data on purchases of foreign and domestic stocks and bonds will be released. At 2:30 CET March Labor Cash Earnings will be released. The tentative outlook is positive.

Oil prices advanced on Wednesday as dollar weakened further and US official data indicated declining oil supplies at Cushing oil-storage hub though US inventories recorded 16th straight weekly gain.

Copper prices rose after data showed US housing market recovery continues as evidenced by 1.1% increase in pending home sales in March. US is the biggest user of copper after China. Aluminum, zinc, lead and tin also advanced on London Metal Exchange, while nickel declined.

 

Source: IFC Markets