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| Fed interest rate hike: shares surge as markets celebrate - business live | Fed interest rate hike: shares surge as markets celebrate - business live |
| (35 minutes later) | |
| 8.45am GMT08:45 | |
| Pound weakens after Fed hike | |
| The US dollar is strengthening this morning, sending it up against all the major currencies. | |
| Last night’s rate hike makes the dollar more attractive to investors, as it offers a higher rate of return. | |
| This has sent the British pound sliding by 0.5%, or nearly three quarters of a cent, this morning to $1.4925 - a two-week low. | |
| Kit Juckes, global currency expert at french bank Société Générale, says a stronger dollar may actually allow the Fed to raise rates more cautiously in 2016: | |
| The overnight reaction to the Fed rate hike has seen equity markets rally, oil prices remain very soft, commodity currencies fall back, and the dollar rally across the board. | |
| I wanted a dollar dip to buy and so far, it’s just gone up. The focus will now be on the timing of the next Fed move, the pace thereafter, and the implications for commodity prices, capital flows out of emerging markets and China’s currency policy. | |
| If the Fed raises rates by 1% next year - in line with the path implied by the FOMC’s forecasts - the dollar will be significantly stronger by December 2016. In practise, they’ll tighten less, in part because of further dollar strength. | |
| 8.31am GMT08:31 | |
| European stock markets are a sea of green: | |
| The fabled “Santa Rally” may be getting underway, now that the Fed rate decision is behind us. | |
| But it’s still not been a vintage year. The FTSE 100 is down 6.3% since the start of 2015. | |
| 8.25am GMT08:25 | |
| The French stock market has jumped by 2%, as the wave of post-Fed relief reaches Paris. Germany’s DAX is close behind. gaining 1.8%. | |
| This is partly because the euro is losing ground against the US dollar, which is a boost to eurozone exporters: | |
| 8.18am GMT08:18 | 8.18am GMT08:18 |
| Hearing the words “Fed hikes rates” is a new experience for anyone who joined the financial world after the crisis began: | Hearing the words “Fed hikes rates” is a new experience for anyone who joined the financial world after the crisis began: |
| Ben Brettell, senior economist at Hargreaves Lansdown, says: | Ben Brettell, senior economist at Hargreaves Lansdown, says: |
| “An interest rate rise is a new experience for much of Wall Street. A whole generation of traders have never known anything but the post-crisis world of ultra-low interest rates and, for the most part, rising asset prices. An estimated two-thirds of traders have never seen a full Fed tightening cycle. | “An interest rate rise is a new experience for much of Wall Street. A whole generation of traders have never known anything but the post-crisis world of ultra-low interest rates and, for the most part, rising asset prices. An estimated two-thirds of traders have never seen a full Fed tightening cycle. |
| Of course, some of us are old enough to have seen it all before.... | Of course, some of us are old enough to have seen it all before.... |
| Does this mean the people who'd never seen a hike don't have to buy the coffees any more? | Does this mean the people who'd never seen a hike don't have to buy the coffees any more? |
| 8.07am GMT08:07 | 8.07am GMT08:07 |
| FTSE 100 surges as "Christmas comes early" to the City | FTSE 100 surges as "Christmas comes early" to the City |
| Boom! European stock markets are open, sending traders rushing to buy shares in the post-Fed rally. | Boom! European stock markets are open, sending traders rushing to buy shares in the post-Fed rally. |
| In London the FTSE 100 index of major blue-chip share jumped 97 points, or 1.5%, at the start of trading. Every share was positive, as a pre-Christmas spirit broke out across the City. | In London the FTSE 100 index of major blue-chip share jumped 97 points, or 1.5%, at the start of trading. Every share was positive, as a pre-Christmas spirit broke out across the City. |
| Nearly every economists and analyst had expected a rate hike last night, so there’s relief that the Fed hasn’t dashed expectations. | Nearly every economists and analyst had expected a rate hike last night, so there’s relief that the Fed hasn’t dashed expectations. |
| And investors are also taking comfort in Janet Yellen’s pledge to only raise borrowing costs “gradually” | And investors are also taking comfort in Janet Yellen’s pledge to only raise borrowing costs “gradually” |
| Robert Craig, private client investment manager at MB Capital, says this promise has delighted Wall Street and the City: | Robert Craig, private client investment manager at MB Capital, says this promise has delighted Wall Street and the City: |
| “While the equity markets are supposedly not the Fed’s primary concern, for the board to deliver anything other than a raise would have caused mayhem. | “While the equity markets are supposedly not the Fed’s primary concern, for the board to deliver anything other than a raise would have caused mayhem. |
| “As it was the expectedly dovish hike, and Janet Yellen’s frequent use of the word ‘gradual’ to describe the pace of future rises, came as a blessed relief to anxious stockwatchers. | “As it was the expectedly dovish hike, and Janet Yellen’s frequent use of the word ‘gradual’ to describe the pace of future rises, came as a blessed relief to anxious stockwatchers. |
| “With the Dow rising steadily from the moment she first opened her mouth, the rosy picture she painted of the US economy and the absence of major overseas threats has sent markets surging with relief. | “With the Dow rising steadily from the moment she first opened her mouth, the rosy picture she painted of the US economy and the absence of major overseas threats has sent markets surging with relief. |
| “In a press conference that was short on precision and long on pragmatism, the Fed left the door wide open to future changes in direction. | “In a press conference that was short on precision and long on pragmatism, the Fed left the door wide open to future changes in direction. |
| “But what is clear is that there will be no sudden spiral of further rate rises – and for stocks, Christmas has come early.” | “But what is clear is that there will be no sudden spiral of further rate rises – and for stocks, Christmas has come early.” |
| Updated at 8.09am GMT | Updated at 8.09am GMT |
| 8.02am GMT08:02 | 8.02am GMT08:02 |
| When might the Fed raise rates next? | When might the Fed raise rates next? |
| The financial markets suggest that the next hike, from 0.5% to 0.75% might not come until June: | The financial markets suggest that the next hike, from 0.5% to 0.75% might not come until June: |
| However, the people actually setting US interest rates are more hawkish. Last night’s forecasts show they expect interest rates to be 1.4% by the end of next year - implying four quarter-point rate hikes. | However, the people actually setting US interest rates are more hawkish. Last night’s forecasts show they expect interest rates to be 1.4% by the end of next year - implying four quarter-point rate hikes. |
| 7.55am GMT07:55 | 7.55am GMT07:55 |
| The Guardian’s editorial writers aren’t impressed by last night’s rate hike, calling it “risky and premature”. | The Guardian’s editorial writers aren’t impressed by last night’s rate hike, calling it “risky and premature”. |
| Here’s why: | Here’s why: |
| It is reassuring for America to feel like it is back in familiar waters – until it transpires that it is not. The quarter-point rate rise addresses one potentially serious problem, but does so in the wrong way. QE dollars have puffed up the price of some assets, and if that puffing goes unchecked, the next bubble and bust could begin. The right way to tackle speculative investment, however, is through targeted regulatory curbs on lending for speculative purposes, not by raising borrowing costs for all investments, including those that America needs. | It is reassuring for America to feel like it is back in familiar waters – until it transpires that it is not. The quarter-point rate rise addresses one potentially serious problem, but does so in the wrong way. QE dollars have puffed up the price of some assets, and if that puffing goes unchecked, the next bubble and bust could begin. The right way to tackle speculative investment, however, is through targeted regulatory curbs on lending for speculative purposes, not by raising borrowing costs for all investments, including those that America needs. |
| The justification for higher rates should be a real economy moving at an unsustainable pelt. There’s no sign of that. | The justification for higher rates should be a real economy moving at an unsustainable pelt. There’s no sign of that. |
| Related: The Guardian view on the US interest rate rise: risky and premature | Editorial | Related: The Guardian view on the US interest rate rise: risky and premature | Editorial |
| We’re not alone either - the Financial Times’ front page calls it a “historic gamble”: | We’re not alone either - the Financial Times’ front page calls it a “historic gamble”: |
| Thursday's FT front page: Historic gamble for Yellen as Fed makes quarter-point rise #tomorrowspaperstoday pic.twitter.com/BNEGdrwDII | Thursday's FT front page: Historic gamble for Yellen as Fed makes quarter-point rise #tomorrowspaperstoday pic.twitter.com/BNEGdrwDII |
| 7.47am GMT07:47 | 7.47am GMT07:47 |
| Apart from anything else, traders are simply relieved that the long prevarication over when US interest rates will rise has ended. | Apart from anything else, traders are simply relieved that the long prevarication over when US interest rates will rise has ended. |
| Our economics editor Larry Elliott explains: | Our economics editor Larry Elliott explains: |
| The quarter-point increase in borrowing costs could hardly be called a spur of the moment decision. On the contrary, the Fed has shown Hamlet-like indecision this year as it has weighed up the pros and cons of abandoning the zero interest rate policy that has been in force for the past seven years. | The quarter-point increase in borrowing costs could hardly be called a spur of the moment decision. On the contrary, the Fed has shown Hamlet-like indecision this year as it has weighed up the pros and cons of abandoning the zero interest rate policy that has been in force for the past seven years. |
| Now, as Julius Caesar said when he crossed the Rubicon (with rather less dithering), the die is cast. The move is intended to signal that interest rates in the US will eventually return to normal. | Now, as Julius Caesar said when he crossed the Rubicon (with rather less dithering), the die is cast. The move is intended to signal that interest rates in the US will eventually return to normal. |
| But not for some time, for this was – in the jargon of Wall Street – a dovish hike in interest rates. That sounds like an oxymoron, but means that the US central bank will take its time before moving again. | But not for some time, for this was – in the jargon of Wall Street – a dovish hike in interest rates. That sounds like an oxymoron, but means that the US central bank will take its time before moving again. |
| Related: Federal Reserve ends Hamlet-like indecision over interest rates | Related: Federal Reserve ends Hamlet-like indecision over interest rates |
| 7.40am GMT07:40 | 7.40am GMT07:40 |
| Asian markets jump | Asian markets jump |
| Asian markets have picked up the baton from Wall Street, with shares jumping in Tokyo, Shanghai and beyond. | Asian markets have picked up the baton from Wall Street, with shares jumping in Tokyo, Shanghai and beyond. |
| Japan’s Nikkei jumped strongly, closing 1.6% higher, as investors took the long-awaited quarter-point rate hike in their strike. China’s main market gained almost 2%, in a wide relief rally: | Japan’s Nikkei jumped strongly, closing 1.6% higher, as investors took the long-awaited quarter-point rate hike in their strike. China’s main market gained almost 2%, in a wide relief rally: |
| FXTM research analyst Lukman Otunuga says: | FXTM research analyst Lukman Otunuga says: |
| Confidence in the global economy received an uplift last night following the Federal Reserve’s unanimous decision to finally raise US interest rates for the first time in almost a decade. | Confidence in the global economy received an uplift last night following the Federal Reserve’s unanimous decision to finally raise US interest rates for the first time in almost a decade. |
| The Dollar was installed with some bullish momentum across the global currency markets, however it was repeated on several occasions as expected that future rate rises will be gradual. | The Dollar was installed with some bullish momentum across the global currency markets, however it was repeated on several occasions as expected that future rate rises will be gradual. |
| But the Fed hasn’t brought any relief to the oil market - crudes price dipped overnight, with Brent crude hovering around $37.30 per barrel | But the Fed hasn’t brought any relief to the oil market - crudes price dipped overnight, with Brent crude hovering around $37.30 per barrel |
| Related: Fed rate hike boosts Asia Pacific markets but oil price continues to fall | Related: Fed rate hike boosts Asia Pacific markets but oil price continues to fall |
| 7.18am GMT07:18 | 7.18am GMT07:18 |
| Introduction: Shares surge after Fed decision | Introduction: Shares surge after Fed decision |
| Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. | Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. |
| What was all the fuss about, eh? After all the speculation and angst about higher US interest rates, financial markets are taking last night’s historic move in their stride. | What was all the fuss about, eh? After all the speculation and angst about higher US interest rates, financial markets are taking last night’s historic move in their stride. |
| Shares have jumped in Asia overnight, and Europe is heading for a strong open in an hour’s time. Spread-betting firm IG predicts that the main indices will all gain at least 1%. | Shares have jumped in Asia overnight, and Europe is heading for a strong open in an hour’s time. Spread-betting firm IG predicts that the main indices will all gain at least 1%. |
| "Our European opening calls: $FTSE 6122 up 61 $DAX 10599 up 129 $CAC 4687 up 63 $IBEX 9833 up 122 $MIB 21480 up 269 | "Our European opening calls: $FTSE 6122 up 61 $DAX 10599 up 129 $CAC 4687 up 63 $IBEX 9833 up 122 $MIB 21480 up 269 |
| This follows a strong day’s trading on Wall Street last night, where the Dow Jones closed up 224 points. | This follows a strong day’s trading on Wall Street last night, where the Dow Jones closed up 224 points. |
| The end of the “extraordinary period” of near-zero interest rates is being welcomed by investors. Crucially, Janet Yellen’s pledge that future rate rises will be gradual (a word she repeated many times last night) is calming traders’ nerves. | The end of the “extraordinary period” of near-zero interest rates is being welcomed by investors. Crucially, Janet Yellen’s pledge that future rate rises will be gradual (a word she repeated many times last night) is calming traders’ nerves. |
| Yellen’s optimism over the prospects for the US economy is also cheering investors; the mood in the City is turning away from the Fed and towards Christmas. | Yellen’s optimism over the prospects for the US economy is also cheering investors; the mood in the City is turning away from the Fed and towards Christmas. |
| Except, of course, its not that simple. | Except, of course, its not that simple. |
| Fed policymakers are still forecasting that rates will rise faster than the markets expect - which could create uncertainty in 2016. | Fed policymakers are still forecasting that rates will rise faster than the markets expect - which could create uncertainty in 2016. |
| Rhys Herbert, senior economist for Lloyds Bank Commercial Banking, explains: | Rhys Herbert, senior economist for Lloyds Bank Commercial Banking, explains: |
| Whilst the Fed has reinforced its message that subsequent rises will take place gradually, the FOMC’s interest rate forecasts continue to point to a faster rate of tightening than is implied by market pricing, leaving room for considerable asset price volatility if economic developments continue along the lines that the FOMC currently expect. | Whilst the Fed has reinforced its message that subsequent rises will take place gradually, the FOMC’s interest rate forecasts continue to point to a faster rate of tightening than is implied by market pricing, leaving room for considerable asset price volatility if economic developments continue along the lines that the FOMC currently expect. |
| How this gap between market and FOMC expectations closes will determine how financial markets behave over the coming year.” | How this gap between market and FOMC expectations closes will determine how financial markets behave over the coming year.” |
| It will take weeks for capital markets and foreign exchange rates to adjust to to the end of the ZIRP era (zero interest rate policy), and possibly years until we know whether Janet Yellen and colleagues made an astute call or a serious blunder yesterday. | It will take weeks for capital markets and foreign exchange rates to adjust to to the end of the ZIRP era (zero interest rate policy), and possibly years until we know whether Janet Yellen and colleagues made an astute call or a serious blunder yesterday. |
| Bernie Sanders, the Democratic presidential candidate, has already called it “Bad News For Working Families”. Commercial banks have wasted no time in raising their borrowing rates, meaning Christmas will be a little tighter for some... | Bernie Sanders, the Democratic presidential candidate, has already called it “Bad News For Working Families”. Commercial banks have wasted no time in raising their borrowing rates, meaning Christmas will be a little tighter for some... |
| U.S. banks rush to raise prime rates to 3.5% (as expected) but keep deposit rates unchanged, a positive for NIMs https://t.co/esBrM5wWSa | U.S. banks rush to raise prime rates to 3.5% (as expected) but keep deposit rates unchanged, a positive for NIMs https://t.co/esBrM5wWSa |
| Also coming up today... | Also coming up today... |
| There could be drama in Argentina, as the government ends currency controls. | There could be drama in Argentina, as the government ends currency controls. |
| The peso is likely to plunge sharply, as finance minister Alfonso Prat-Gay tries to stimulate the economy and encourage foreign investment. | The peso is likely to plunge sharply, as finance minister Alfonso Prat-Gay tries to stimulate the economy and encourage foreign investment. |
| Related: Argentina lifts currency controls, floats peso in bid to boost economy | Related: Argentina lifts currency controls, floats peso in bid to boost economy |
| And in Europe, we get the latest UK retail sales figures (at 9.30am GMT), plus the IFO survey of German business confidence (at 9am). | And in Europe, we get the latest UK retail sales figures (at 9.30am GMT), plus the IFO survey of German business confidence (at 9am). |
| Updated at 7.24am GMT | Updated at 7.24am GMT |