The Federal Reserve raised interest rates on Wednesday for the second time in three months, citing continued USA economic growth and job market strength, and announced it would begin cutting its holdings of bonds and other securities this year.
THE FED: The Federal Reserve raised interest rates for the third time since December, something investors widely expected based on the Fed's recent statements. It was the first decline in more than a year, and investors are buying high-dividend stocks, government bonds and gold and selling bank stocks.
Asian markets edged lower and USA stock futures also dipped overnight after news organizations reported that special counsel Robert Mueller has begun interviewing top government officials as part of an investigation into whether President Donald Trump tried to obstruct justice regarding Russia's role in the 2016 election. The central bank clearly outlined a plan to reduce its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the 2007-2009 financial crisis and recession. The Russell 2000 index sank 8 points, or 0.6 per cent, to 1,418.
Investors' inflation expectations gauged by the spread between the 10-year inflation-linked bonds and conventional bonds fell to 1.726 per cent, completely wiping out its rise since the US presidential election.
A Reuters poll of 21 of the 23 primary dealers that do business directly with the Fed showed 14 of them now believed it would announce the start of its balance sheet normalisation at its September 19-20 policy meeting.
The weak USA data had knocked the dollar and US bond yields to its lowest level in seven months against a basket of currencies. Department store chain Kohl's dropped 99 cents, or 2.6 per cent, to $37.06 and Macy's slid 13 cents to $22.13.
They said they expected Fed policymakers to raise interest rates one more time by the end of 2017 and then three times in 2018. Natural gas fell 3 cents, or 1.1 percent, to $2.93 per 1,000 cubic feet.
Banks fell. The drop in bond yields sent interest rates lower, which reduces the profits banks can make from mortgages and other loans. Utilities and real estate investment trusts climbed. The euro dropped to $1.1158 from $1.1217.
U.S. stock futures and Asian shares slid on Thursday, hit by soft U.S. economic data, a relatively hawkish Fed and a media report that U.S. President Donald Trump is being investigated by a special counsel for possible obstruction of justice. Benchmark U.S. crude fell $1.76, or 3.8 per cent, to $44.70 a barrel in NY.
Against its Japanese counterpart, the dollar shrugged off earlier losses and was flat at 109.54 yen, above Wednesday's eight-week low of 108.81 yen. It fell $1.73, or 3.7 percent, to settle at $44.73 a barrel in NY.
Exxon Mobil lost $1.18, or 1.4 per cent, to $81.78 and Halliburton sank $1.30, or 2.8 per cent, to $44.54.
BLOCK PARTY: Tax preparer H&R Block posted a bigger profit than analysts expected as well as slightly stronger sales. Its shares climbed $2.41, or 8.9 percent, to $29.40.
JOB POSTING: Biotech drugmaker Biogen fell and competitor Alexion rose after Biogen Chief Financial Officer Paul Clancy left the company to join Alexion. Analysts said Wall Street has a great deal of respect for Clancy, who has been Biogen's CFO for 10 years.
Biogen gave up $8.78, or 3.4 percent, to $252.64 and Alexion jumped $9.53, or 8.8 percent, to $117.53.
OVERSEAS: Germany's DAX advanced 0.5 per cent and the CAC-40 in France lost 0.1 per cent. The British FTSE 100 fell 0.3 percent.
Nikkei futures in Chicago were 0.03 percent higher at 19,890 and Osaka futures were down 0.22 percent at 19,840. In South Korea the Kospi retreated 0.1 percent.