Federal Reserve rate hike ups European markets

A trader works on the floor of the New York Stock Exchange (NYSE) as a television screen displays coverage of U.S. Federal Reserve Chairman Janet Yellen shortly after the announcement that the U.S. Federal Reserve will hike interest rates, in New York, U.S., December 14, 2016.  REUTERS/Lucas Jackson


London / AFP

Europe’s stock markets advanced on Thursday and the dollar soared after the US Federal Reserve hiked interest rates as expected — and signalled three more rises next year. The news sent the dollar spiking to a near 14-year high against the euro, as the hawkish prospect of more rate increases cemented support for the greenback.
Shortly after midday, the European single currency tanked to $1.0405, the lowest level since January 2003. The yield on 10-year US Treasury bonds hit the highest level since the summer of 2014, having already soared in the wake of Donald Trump’s surprise election victory.
Trump unexpectedly won the US presidency in November with populist promises to protect US jobs, ramp up infrastructure spending and slash taxes.
“The market is whole heartedly embracing Trumpenomics and the idea that the
US economy will be on fiscal steroids in
the next few years. Rates will rise and the dollar will surge,” City Index analyst Kathleen Brooks said.
“In contrast, the eurozone is mired in problems including slow growth, low inflation and multiple political risks in Italy and France.” The London stock market meanwhile shifted into positive territory after the Bank of England held interest rates at a record-low 0.25 percent.
The British central bank said all nine policymakers agreed at a regular policy meeting to keep the rate on hold and to leave the amount of QE cash stimulus pumping around the economy at £435 billion ($543 billion, 521 billion euros).
In the eurozone, the banking sector bolted higher on expectations of swelling profits in Europe in the wake of the Fed news, dealers said. “The main thing for Europe is the banks,” said ETX Capital analyst Neil Wilson.
“Banking stocks (are) driving European bourses higher after the Fed hiked rates and yields pushed higher. “Banks are really enjoying this Trump bump and the Fed’s hawkish pivot.” There were broad gains in the eurozone, with Frankfurt and Paris stocks both adding 0.5 percent.
Frankfurt’s top gainer Deutsche Bank jumped 4.35 percent to 18 euros. The biggest winner in Paris was lender BNP Paribas, whose stock was up 3.5 percent at 60.64 euros. Rivals Societe Generale and Credit Agricole added 3.1 percent and 2.5 percent, to stand at 47.37 euros and 11.83 euros respectively.

“There could be no better news for
the banking sector than higher rates,” said London Capital Group analyst Ipek Ozkardeskaya, noting that the sector had struggled for years with the low global interest rate environment. “They have seen their revenues squeezed (and) they had to increase their risk taking in order to secure tiny returns for their clients,” she added. “Now, finally, they can see the light at the end of the tunnel. “Higher rates means higher margins, improved organic revenues, lower pressure. This explains the cheerfulness in the banking sector.”

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