On 17 December, 2015 – Investors sighed with relief that the Fed finally acted

Stocks in Asia and Europe rallied as investors reacted to the Federal Reserve’s policy move. US stocks however retreated thanks to falling commodity prices.

United States

US markets moved lower Thursday after Wednesday’s big rally. Shares of mining companies fell along with the price of gold and copper, while a proposed congressional budget deal sent shares of solar power companies higher. The Dow Jones industrials were down 1.4 percent, the S&P lost 1.5 percent and Nasdaq was 1.35 percent lower. Stocks jumped Wednesday after the Federal Reserve raised interest rates, a long expected vote of confidence in the US economy. Investors were encouraged that the Fed emphasized that further increases would be gradual.

FedEx advanced after it said its quarterly profit grew as online shopping increased and costs in its express-delivery business came down. FedEx also said it expected holiday shipments to rise by more than 12 percent from a year ago. Avon Products rose after it said it would sell its North American business to Cerberus Capital Management for $170 million. Cerberus will also invest $435 million in the remaining Avon business. Newmont Mining and Freeport-McMoRan declined along with Alcoa. General Mills retreated after its quarterly results missed estimates.

SolarCity shares gained as did those of Sunrun. Solar power stocks continued to rise after Congress agreed to extend a federal tax credit for commercial and residential solar products. Senator Charles Schumer, Democrat from New York, said a budget deal between Democrats and Republicans would extend the 30 percent credit through 2019. Pandora Media surged after a panel of copyright judges raised the amount that streaming companies like Pandora have to pay to record labels, but less than many had expected. Oracle slipped after the company reported a smaller quarterly profit. Its revenue also fell short of forecasts.

The FOMC has made it clear that the pace of future rate increases will depend on progress in economic data. A report today showed fewer Americans than forecast filed applications for unemployment benefits last week, a sign of persistent strength in the labor market. A separate report showed an index of leading indicators rose more than estimated in November.

These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing dropped US$25.85 to US$1,049.40. Copper futures were down 1.4 percent to US$2.04. WTI spot crude was down 79 US cents to US$34.73. Dated Brent spot crude was down 42 US cents to US$36.97. The US dollar was up against all of its major counterparts including the euro, yen, pound, Swiss franc and the Canadian and Australian dollars. The Dollar Index was up 0.9 percent. The yield on US Treasury 30 year bond was down 9 basis points to 2.92 percent while the yield on the 10 year note was down 7 basis points to 2.23 percent.

Europe

Stocks rallied Thursday as investors had their first opportunity to react to Wednesday's Federal Reserve interest rate increase. Markets in the United States and in Asia rallied after the decision overnight. Banks, automakers and insurance companies were among the top performing stocks in Europe. However, early gains began to erode in the afternoon following the weak opening of the US markets. Weakness in commodity prices, notably a pullback in crude oil prices, was partly responsible for the decline is US stocks. The FTSE was up 0.7 percent, the CAC gained 1.1 percent, the DAX jumped 2.6 percent and the SMI was 0.6 percent higher.

Volkswagen, BMW, Daimler, Renault and Peugeot advanced. Fresenius, Fresenius Medical Care and Bayer surged. In London, AstraZeneca gained after the drug maker agreed to acquire 55 percent of Acerta Pharma for $4 billion. Both E.ON and RWE closed higher. Banks including Commerzbank, Deutsche Bank, Société Générale, Crédit Agricole and BNP Paribas advanced. Standard Chartered and Old Mutual rallied. Elementis plunged after the company said it expects earnings per share for 2015 to be at the lower end of the range of market expectations.

UK retail sales expanded 1.7 percent in November on the month.

Asia Pacific

Shares rallied across the board Thursday as the Fed's widely anticipated interest rate increase and the subsequent positive reaction by the US markets engendered optimism. Analysts said that there was a sense of relief that the Fed finally raised rates. Further they said it has removed the point of liftoff from the discussion. Now the question is how gradual will the normalization process be and where do the risks lie.

The US dollar's strength weakened the yen, which in turn lent support to the Japanese market. The Nikkei was up 1.6 percent. A majority of stocks advanced in the session, with SKY Perfect JSAT, Keio, Keisei Electric, Marui, Sumitomo Metal Mining and Nisshin Seifun leading the gains. However, Taiyo Yuden, Sumco and TDK declined. Steel makers were under selling pressure. Japan's Ministry of Finance reported that Japan's trade deficit narrowed to ¥379.7 billion. Exports declined 3.3 percent on the year while imports dropped 10.2 percent.

The Hang Seng added 0.8 percent while the Shanghai Composite closed 1.8 percent higher. IT, telecom, utility and healthcare were among the best performers of the session. China’s stocks rose as funds flowed back to the equities market after a recent spate of initial public offerings, while the yuan weakened for a record 10th day, bolstering the outlook for exports.

The S&P/ASX added 1.5 percent and the All Ordinaries were 1.4 percent higher. The Kospi added 0.4 percent while the Sensex jumped 1.2 percent.

Looking forward

The Bank of Japan announces its monetary policy decision. France releases its November producer price index. Canada reports its November consumer price index. In the US, December flash services PMI and Kansas City Fed manufacturing survey will be released.

Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.