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Central banks continue to cast shadow over markets

It’s Europe’s turn to react to Janet Yellen and the Fed’s rate rise, and so far, it’s steady as she goes.

What you need to know:

  • Dollar holds ground after Federal Reserve raises rates by 25bp as expected
  • US Central bank maintains forecast for one more increase this year
  • Treasury yields steady after paring losses
  • European equities drift back
  • Oil holds calmer after rout on inventories report

Central Banks remain in the spotlight as investors continue to factor in the Fed’s move. The dollar is holding its ground after it rebounded against the euro following the rate rise, which came with surprisingly detailed plans on how the Fed will shrink its balance sheet.

The index tracking the world’s reserve currency is currently flat at 96.928, after a volatile run into and around the decision.

The Bank of England is expected to leave policy unchanged at its meeting, which ends at midday. The Swiss National Bank kept its policy on hold.

On Friday, the Bank of Japan is also likely to hold pat, although it is expected that there could be some discussion on whether it will maintain its ¥80tn annual pace of bond purchasing.

Equities

The Euro Stoxx 600 is down 0.1 per cent, with energy stocks taking a toll after crude’s slide over the previous session. The FTSE 100 is down 0.2 per cent in London and the Xetra Dax 30 is also down 0.1 per cent

Overnight in New York, the S&P 500 edged back 0.1 per cent to 2,437. The Wall Street benchmark closed at a record high of 2,440.35 on Tuesday.

Hong Kong’s Hang Seng index was down across the board after the territory’s de facto central bank raised its baseline interest rate to match the move from the Fed. In Tokyo, the Topix slipped 0.2 per cent

Forex

The euro is down 0.1 per cent at $1.1202 and sterling is 0.2 per cent weaker as $1.2722 as the dollar continues to holds its ground.

After the SNB rate call, the Swiss franc is up 0.2 per cent at $0.9729.

Fixed income

The yield on 10-year US Treasuries is steady after Wednesday’s drop of 9bp, which came as traders reacted to weak US inflation numbers that preceded the Fed decision by buying the debt. Benchmark 10-year US Treasury yields, which move inversely to prices, are flat at 2.14 per cent. The yield on the more policy sensitive 2-year debt is up 1 basis point at 1.35 per cent.

There is a similarly steady showing across sovereign debt markets in Europe, with Germany’s 10-year Bund yield up 1bp at 0.24 per cent.

Commodities

Crude oil prices are steadier, finding support after the previous session’s slide that tracked data showing US gasoline inventories unexpectedly rose and crude stockpiles fell less than expected last week.

Brent crude, the international benchmark, is flat at $47.01 a barrel after a drop of 3.5 per cent on Wednesday. West Texas Intermediate, the US marker, is flat at 0.1 per cent at $44.72 following a fall down of 3.7 per cent.

Geoffrey Yu, Geoff Yu, head of the UK Investment Office at UBS Wealth Management, says:

Whether the dollar and US yields can hold on to their gains from the late post-Fed rebound will be crucial to the session’s performance.

Markets will continue to digest the FOMC’s release from overnight. The fact that we are even discussing a September commencement to balance sheet reduction and unchanged rate trajectory suggests the Fed is still at ease with economic growth in the US and markets should find solace in such confidence