Markets Digest The Fed’s Liftoff

fed hike

 

■ U.S. equities lose momentum after initial positive reaction to liftoff

■ Fed promises gradual further rate hikes

■ S&P 500 loses 0.3% during week, after peaking +3%

■ Global markets see all out fight to safety towards end of week

■ JPY adds volatility on Bank of Japan statement for monetary expansion

Following a fairly positive response to the Fed’s first rate hike, growing pessimism has led markets globally to conclude the weekly session with a rather muted tone. The S&P 500, specifically, climbed a total of more than 3% between Monday and Wednesday, as he first rare hike in almost a decade established itself as a done deal, eroding uncertainty. In spite of expectations for an end of the year rally, On Thursday the positive momentum started to break, growing towards an all-out flight to safety on Friday. Significant decreases in those two days have led the S&P to conclude the week with a 0.34% loss, at a level of 2005.52. Worse yet, the Dow shelled off close to 0.8% during the week and the Nasdaq lost more than 0.2%. Growing signs of anxiety have pushed the Chicago Board Options Exchange’s VIX index back above the 20 point mark, peaking to as high as 23.3, during Friday’s session.

Paradoxically, through this flight to safety, Yellen’s rate hike actually led the U.S. sovereign bond yield curve to see some declines. Yields of the U.S. 2 year have tumbled of 0.95% at the end of the week, after peaking to 1.01%, as investors fled riskier assets in search of safer havens. The U.S. Dollar has been increasing through most of the week. EUR/USD bottomed to as low as 1.0803 on Thursday. But some of it faded later on, concluding at 1.0868.

The JPY also showed impressive signs of volatility during the week. On Friday, the Japanese currency weakened to a level of 123.56 to the Dollar, as the Bank of Japan released a statement that it would purchase Japanese Government Bonds at a rather long maturity of 7-12 years. Later realization that the move does not diverge significantly from the current policy of the BoJ, however, has helped send USD/JPY down to 121.16.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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