On 27 January, 2016 – Global stocks mixed before and after FOMC announcement

US stocks retreat after FOMC announcement. 

United States

Stocks declined in afternoon trading after the Federal Reserve said it would keep its benchmark interest rate steady but signaled concern about the rate of global economic growth. The price of oil was climbing for the second consecutive day, sending energy companies higher. The Dow Jones industrials were down 1.4 percent, the S&P declined 1.1 percent and the Nasdaq tumbled 2.2 percent.

Crude rose as investors hoped for cuts in fuel production. On Wednesday, the head of Russia’s state oil pipeline monopoly said talks with OPEC and Saudi Arabia were being planned. Oil prices have plunged over the last year and a half because of the huge fuel glut.

Chevron and Exxon Mobil advanced. Despite a weak fourth quarter report, shares of Hess climbed after it said it would make even deeper cuts in spending. Earlier this week, Hess said it would slash capital spending by 40 percent in 2016. Apple slumped after the company said growth in iPhone sales slowed in the fourth quarter. It also predicted its first decline in revenue in 13 years for the current quarter. The chief executive, Tim Cook, said the strong dollar was hurting sales.

Boeing retreated after its 2016 outlook came up short of analyst projections. Shares of Textron, which makes Cessna planes and Bell helicopters, also tumbled after its fourth quarter profit and sales disappointed investors. Freeport-McMoRan climbed after it announced plans to cut spending and production and eliminate more jobs. Biogen rose after its fourth quarter earnings were stronger than expected. Tupperware was down after its fourth quarter profit and sales fell far short of estimates. Total System Services declined after its earnings fell short of estimates and it gave a weak profit forecast.

As widely expected, the Federal Reserve left its key fed fund interest range at 0.25 percent to 0.50 percent. The vote was unanimous. In its statement, the FOMC reassured that it was paying attention to the international situation and the volatility in the financial markets. It said “the Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.”

The Fed also said once again that it expects the impact of low energy prices on inflation to be “transitory” and that it reckons inflation should head toward its target of a 2 percent rate in the medium term. It also said that recent information suggests that labor market conditions improved further even as economic growth slowed late last year. The FOMC noted that household spending and business fixed investment has increased at moderate rates in recent months and the housing sector has improved further. However, it said that net exports have been soft and inventory investment has slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources.

These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$3.65 to US$1,116.25. Copper futures were up 0.9 percent to US$2.06. WTI spot crude was up 59 US cents to US$32.04. Dated Brent spot crude was up US$1.04 to US$32.84. The US dollar was up against the pound, yen and the Canadian dollar. However, it declined against the euro, Swiss franc and Australian dollar. The Dollar Index was down 0.1 percent. The yield on US Treasury 30 year bond was unchanged at 2.80 percent while the yield on the 10 year note added 1 basis point to 2.01 percent.

Europe

Stocks were mixed as the markets fluctuated between modest gains and losses throughout the trading day. Early weakness in crude oil prices had a negative impact on investor sentiment. A negative reaction to Apple's quarterly results as well as a disappointing forecast from Boeing also soured the mood among investors. The markets recovered some ground in late trading, after a rebound in crude oil prices. The reversal in oil prices came in reaction to US crude inventory data. Investors were also hesitant to make moves ahead of the Federal Reserve policy announcement after markets here were closed for the day. The FTSE was up 1.3 percent, the CAC gained 0.5 percent, the DAX advanced 0.6 percent and the SMI inched 0.1 percent higher.

In Frankfurt, BASF declined after the chemicals giant warned of lower-than-expected 2015 earnings after taking a €600 million charge for the fourth quarter. Infineon Technologies and ARM Holdings weakened in London after Apple posted its slowest growth in iPhone sales since the product's 2007 launch. In Paris, Airbus tumbled after Boeing issued a disappointing 2016 forecast. In London, Royal Bank of Scotland dropped after saying it would take a £3.6 billion hit to the value of its assets.

Copper miner Antofagasta retreated after missing its 2015 output target. Aberdeen Asset Management and Ashmore Group gained on broker upgrades. Sage Group climbed after it reported that its group organic revenue increased by 6.6 percent for the first three months of the year. The company stated that it is confident that business remains on course for fiscal year 2016 full year guidance. Novartis declined in Zurich. The company reported that fourth quarter earnings per share decreased to $0.44 from $0.62 last year. Fiat Chrysler declined in Milan. The company announced that its net profit for the fourth quarter slid to €251 million from last year's €420 million. In the UK, the mining index rose 1.9 percent with Glencore, BHP Billiton and Anglo American gaining on the day.

Asia Pacific

Asian stock markets were mostly higher on Wednesday, with Japanese shares climbing to a near two week high prior to the Bank of Japan meeting Friday. Stocks here followed US shares higher amid a rebound in oil prices, upbeat consumer confidence and home price data as well as better than forecast earnings from Procter & Gamble, Johnson & Johnson, 3M and Coach.

The Shanghai Composite closed down 0.5 percent after falling as much as 4 percent during the day. Worries about economic growth resurfaced after official data showed profits earned by Chinese industrial enterprises declined at a faster pace in December, weighed down by sluggish domestic demand and severe overcapacity across many manufacturing industries. Industrial profits fell an annual 4.7 percent, marking the seventh straight month of declines. The Hang Seng however, was up 1.0 percent after China's state-run media issued a blunt warning to speculators not to bet on a falling yuan.

The Nikkei jumped 2.7 percent to a near two week high as risk appetite revived. With inflation expectations waning, some investors expect the Bank of Japan to expand stimulus Friday. Apple suppliers Asahi Glass and Japan Display gained even though the company’s quarterly results proved to be a mixed bag. Sony climbed after agreeing to buy an Israeli technology firm for $212 million. Softbank Corp jumped after its US subsidiary Sprint posted a smaller than expected quarterly loss and raised its earnings outlook. Suzuki Motor and Toyota advanced even as they denied discussing a potential partnership to capitalize on demand for compact cars in India and other emerging markets.

Australian shares fell sharply as Chinese shares lost further ground and slightly higher than expected consumer price inflation data dented hopes of an interest rate cut from the Reserve Bank of Australia in the near term. The S&P/ASX was down 1.2 percent while the All Ordinaries closed down 1.1 percent. National Australia Bank tumbled after its shareholders overwhelmingly endorsed plans to offload its poorly-performing UK business. ANZ, Commonwealth and Westpac also retreated. Woodside Petroleum, Santos and Oil Search were down as the World Bank and Credit Suisse slashed their oil price forecasts for 2016. AWE soared after divesting its 10 percent stake in the Sugarloaf shale project in Texas. Recall Holdings dropped after buying a Swiss document storage and management firm. The Kospi was up 1.4 percent while the Sensex was virtually unchanged.

Looking forward

Japan posts December retail sales. The UK reports its first estimate of fourth quarter gross domestic product. In the US, December durable goods orders and pending home sales index along with the weekly jobless claims, money supply and fed balance sheet 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.