On 14 June, 2017 – Global stocks lower as they waited for the FOMC announcement

As expected, the Fed raised its fed funds rate by 25 basis points.
United States
After showing a lack of direction, stocks were mixed at the end of the trading day. The Dow Jones industrials managed to climb 0.2 percent to a new record high. However, the S&P and Nasdaq declined 0.1 percent and 0.4 percent respectively.
In data released before the Federal Reserve announcement, May retail sales tumbled a monthly 0.3 percent after rising 0.4 percent in April. Excluding auto sales, retail sales were still down 0.3 percent following the 0.4 percent growth seen in April. May consumer prices slipped 0.1 percent thanks to a steep drop in energy prices.
Energy stocks including Exxon Mobil and Halliburton moved sharply lower amid a drop in the price of crude oil, while strength was visible among tobacco and biotechnology stocks. GameStop and Kohl’s declined. Banks including Citizens Financial and Lincoln National retreated. H&R Block climbed after it posted a bigger profit than expected as well as slightly stronger sales.
As widely expected the Federal Reserve at its FOMC meeting lifted its fed funds rate range to 1.00 percent to 1.25 percent. In its statement, the FOMC said the labor market has continued to strengthen and business spending has continued to expand. It also said household spending has picked up in recent months, apparently referring to a 0.4 percent rise in April consumer spending. However, the FOMC conceded that inflation has recently declined and it is monitoring the situation. (In her press conference, Chair Janet Yellen pointed specifically to cell phone plans and gasoline prices that have been dropping as weighing on the overall consumer price index.)
The FOMC expects to begin reducing its $4.5 trillion balance sheet this year but provided no start date. A key caveat here is that the economy must continue to expand as it is expected to. Initial reinvestment limits will start at $6 billion per month for Treasuries and $4 billion per month for mortgage-backed securities, rising each quarter until the caps reach $30 billion per month for Treasuries and $20 billion for mortgage-backed securities. Ms Yellen did not say specifically when the Fed would begin to reduce its balance sheet nor how it might be coordinated with further fed fund rate increases.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$13.50 to US$1,275.50. Copper futures were down 1.3 percent to US$2.56. WTI spot crude was down US$1.71 to US$44.75. Dated Brent spot crude was down US$1.70 to US$47.02. The US dollar was down against the yen, euro and the Canadian and Australian dollars. The currency advanced against the Swiss franc and was virtually unchanged against the pound. The Dollar Index was down 0.1 percent. The yield on US Treasury 30 year bond dropped 9 basis points to 2.77 percent while the yield on the 10 year note was down 8 basis points to 2.13 percent.
Europe
European stocks were mixed Wednesday. They climbed for most of the morning thanks to positive Chinese industrial production and retail sales data along with the continued technology stock rebound. However, markets sagged in afternoon trading after a pair of weak US economic reports. Traders were also cautious ahead of the Federal Reserve’s policy announcement which would take place after the European close. The FTSE was down 0.3 percent, the CAC declined 0.4 percent and the SMI was 0.2 percent lower. The DAX added 0.3 percent.
Air Berlin finished higher after German Economics Minister Brigitte Zypries said the airline is in a “precarious” situation. In Paris, BNP Paribas and Société Générale retreated after they launched the sale of approximately 4.4 million Euronext shares representing approximately 6.3 percent of the Euronext’s share capital. Construction firm Eiffage increased after winning a contract worth €43 million. Bellway jumped after the homebuilder reported a rise in orders for its homes, citing robust market conditions. Persimmon and Taylor Wimpey rallied. Aggreko climbed after acquiring a power rental company in Indonesia. BP and Royal Dutch Shell closed lower.
Eurozone industrial production increased for the second straight month in April. Output was up 0.5 percent on the month. UK May claimant unemployment rate remained at 2.3 percent even though the number of unemployment climbed by 7,300. However, the ILO measure of the unemployment rate for the three months to April was 4.6 percent. Over the same period, the survey’s employment advanced 109,000 which lifted the employment rate by 0.2 percentage points to a new record high of 74.8 percent. Average annual wage growth in February to April actually declined to an unexpectedly low 2.1 percent, equaling its softest print since the fourth quarter of 2015.
Asia Pacific
Asian stocks were mixed as investors waited for the US Federal Reserve’s monetary policy statement later in the global market day.
The Shanghai Composite was down 0.7 percent — media reports alleging a probe of the head of financial conglomerate Anbang Insurance Group overshadowed positive data showing signs of stabilization in the economy. The Hang Seng edged up 0.1 percent. May industrial production was up 6.5 percent from a year ago while retail sales advanced an annual 10.7 percent. However, fixed-asset investment growth moderated in the first five months.
Both the Nikkei and Topix slipped 0.1 percent as investors stayed on the sidelines prior to the Fed’s announcement later in the day as well as the Bank of England meeting Thursday and the Bank of Japan’s two-day policy review ending on Friday. Toshiba declined after the firm said it had been hit with 26 suits demanding a total of nearly $1 billion. Nintendo gained after a slew of new announcements at this week’s Electronic Entertainment Expo in Los Angeles. Ono Pharmaceutical rallied after it said it would repurchase up to 20 million shares.
The S&P/ASX was up 1.1 percent and the All Ordinaries was 1.0 percent higher after a rebound in technology stocks helped US indices reach fresh record highs overnight. Investors shrugged off the latest survey from Westpac Bank showing that Australian consumer sentiment has fallen to its lowest level in over a year. Financials including the big four banks gained along with investment bank Macquarie Group. BHP Billiton and Rio Tinto ended on a flat note after industrial metal prices closed lower on Tuesday. Fortescue Metals Group gained.
The Kospi slipped 0.1 percent as investors waited for the Fed decision. The Sensex was up 0.2 percent.
Looking forward
New Zealand posts first quarter gross domestic product. Australia releases May labour force survey. The Swiss National Bank publishes its quarterly monetary policy assessment. The UK reports May retail sales. The Bank of England publishes its monetary policy decision and monetary policy committee minutes. Canada reports April manufacturing sales. In the US, June Philadelphia Fed business outlook survey and Empire State manufacturing survey, May industrial production and import/export prices and weekly jobless claims, money supply and Fed balance sheet will be released.
Global Stock Markets

*Note — all releases are listed in local time.

Source: Fidelity

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