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US stocks finish lower as Fed projects faster rate hikes

Jun 14 2018 09:27

Wall Street stocks finished moderately lower on Wednesday after the Federal Reserve raised interest rates and projected a more aggressive pace of additional hikes amid a strengthening economy.

The announcement - described by several analysts as somewhat hawkish - initially boosted the dollar. However, the US currency later retreated ahead of announcements from the European Central Bank on Thursday and the Bank of Japan on Friday.

Major European bourses finished flat or moderately higher, while Asian markets were mixed.

In addition to lifting benchmark interest rates to a range of 1.75% to 2.0%, which was expected, the Fed released interest rate projections that implied two more rate hikes instead of one in 2018 and four rate hikes in 2019 instead of three.

The Federal Open Market Committee statement stressed that rising interest rates were unlikely to derail economic growth, which the committee now characterised as "strong" rather than "moderate."

Although he acknowledged concern among businesses nationwide about the uncertainty created by President Donald Trump's abrasive trade policies, Fed chairperson Jerome Powell stressed during a news conference that "the US economy is in great shape."

Powell also downplayed concerns about accelerating inflation, saying the central bank would not overreact to an expected uptick driven by the recent increase in oil prices and would aim for the rate to hold at around 2% for a "sustained" period.

"We know inflation is going to bounce around," he told reporters. "We didn't overreact, I think, to inflation being under 2%. We won't overreact to it being over 2%."

JJ Kinahan, chief market strategist TD Ameritrade, noted that oil prices had retreated somewhat from their levels in mid-to-late May, giving the US central bank more breathing room on inflation.

Renewed trade war fears

At roughly the same time as the Fed announcement, the Wall Street Journal reported that the Trump administration intended to proceed with a plan to impose tariffs on tens of billions of dollars of Chinese goods, a move expected to prompt retaliatory measures from China.

Boeing and Caterpillar, two blue-chip companies with significant operations in China, both lost around 2%.

Art Hogan, chief market strategist at Wunderlich Securities, described the Fed's decision as "moderately hawkish" but said it was not much different than expected. He said Boeing's drop reflected trade-war fears.

"Right now, the stock market is as much about trade policy as it is about monetary policy," Hogan said.

The timing of the trade story with the Fed news "muddied the waters" as far as determining what led to the weakening in US stocks at the end of the session, said a note from Briefing.com.

Media stocks were among the biggest movers following a US judicial decision that cleared the way for the $85 billion merger of wireless and broadband giant AT&T with media-entertainment conglomerate Time Warner.

Time Warner rose 1.8%, while AT&T dropped 6.2%.

Hong Kong's main index dropped 1.2% with shares in Chinese telecoms equipment maker ZTE collapsing more than 40% as it resumed trading after agreeing to pay a massive fine over its handling of a US sanctions violation.

The firm suspended trading in April after Washington said it had banned American companies from selling crucial hardware and software components to it for seven years.

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equities  |  wall street  |  markets
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