Markets In Review: Markets Lose Momentum after Fed’s Hike

■ U.S. stocks advance on Fed’s rate hike, but selling pressure amounts towards weekend

■ Fed targeting three hikes in 2107 leads to yield drop, USD selloff

■ JPY’s appreciation weighs on Nikkei, with a 0.4% weekly loss

■ DAX adds 1.1% weekly, in spite of EUR’s appreciation

■ OPEC pushes oil prices back towards USD 50

The stock market’s initial reaction to the Fed’s rate hike, on Wednesday, was a positive one. Broadly, the 0.8% increase of the S&P during the day, accompanied by a 0.7% increase for the Nasdaq suggested that market participants might be willing to accept the lesser accommodation deriving from a 0.75%-1% federal funds rate. Subsequent, volatile, Thursday and Friday session, however, proved less comfortable for the American equity investor with the S&P recording 0.3% decline in those two days directing the index to a modest 0.2% weekly increase.

Initial optimism may be explained by the rate announcement being accompanied by a small grain of sugar in the form of the Fed’s dot plot ruling out four hikes in 2017, in favor of just three. On an interest rate guidance prism, summing the combined impact of the Hike, revised guidance and aftermath, the U.S. 10 year bond’s yield settled at 2.50% on Friday, less than the 2.6% range where it traded through the start of the week. On the one hand, that is a considerable 0.08% less than where it was trading prior to the Fed’s announcement, which should’ve translated to a more accommodative environment for stocks.

Implications of a weaker Dollar

Further weighing on the valuation of U.S. equities, the dollar is substantially weaker at this point. USD/JPY is down about 1.8% for the week, making this the largest weekly drop for the pair since early February. Unsurprisingly, the export intensive Nikkei 225 didn’t benefit much from the appreciation of the Yen, down about 0.4% for the week, at 19,521.59 points.

The greenback also descended to 1.0738 vs. the Euro on Friday’s close, a 0.6% weekly depreciation. European equities, however, have pulled forward. The interpretation that a more dovish Fed would allow the ECB to remain accommodative for longer certainly contributed. Geert Wilders failing to win the Dutch elections, spurring speculation for similar results for Marine Le Pen at the upcoming elections in France, also boosted European sentiment – the DAX added close to a percentage point on Thursday’s open bell, after the Fed’s announcement, aiding it secure a 1.1% weekly increase, to 12,096.24 points.

In contrast to the Fed, the Bank of England’s decision to keep rates unchanged on Thursday was perceived as somewhat hawkish, as one member of the Monetary Policy Committee voted for a hike. Due both to this fact, as well as Wednesday’s Fed decision, GBP/USD increased a hefty 1.9% for the week, to 1.2396. The FTSE 100 showed strength in spite of the GBP’s gain, touching a new high of 7447.00 points on Friday.

Finding no comfort at the Dollar also boosted gold’s attractiveness as a safe haven, with the metal rising to USD 1,229.26 per oz.

Oil prices fell to as low as USD 47.09 per barrel on Tuesday, following OPEC’s reporting monthly oil market report showing an increase of Saudi production in the previous month. The line was drawn soon after though after the Saudi energy ministry issued a statement it is “committed and determined to stabilizing the global oil market.” Overall, oil ended the week with a 0.5% weekly increase, though the firm support is probably the more important development for this market.