Imminent rate hikes sent shockwaves throughout U.S. stocks & treasures. Both faltered as the Federal Reserve Chair Janet Yellen guaranteed increased interest rates next week. Banks reacted to this news by increasing the likelihood of a short-term blow back. Despite this controversy, the dollar held steady. In Europe, a series of controversial elections caused their stocks & currencies to slide. Metals joined this slump as Chinese growth slowed. Despite the rest of commodities hitting lows, oil & gold are on the rebound. These mixed reactions showcase the growing uncertainty of the current market.
Fed’s Promises Provoke Short-Term Losses
The Federal Reserve’s promises to raise interest rates in a week has sparked last minute panic amongst banks. JPMorgan Chase & Co. is predicting that this bold move will provoke a short-term pullback for investors. This was immediately reflected in the stock market, where U.S. stocks took a beating. The S&P 500 slid 0.4%, leaving it at 2,373.755. This was shocking news, since the benchmark managed to squeak by with a 0.1% gain. It’s set to end higher for a 6th straight week, barely maintaining its run.
Despite the fluctuation in stocks, things are still on track in most U.S. financial sectors. The Bloomberg Dollar Spot Index rose by 0.1%, putting it on track for its 6th advance in the last week. The yield on 10-year Treasury notes crept up 1 basis point, leaving it at 2.49%. Employers in the U.S. hired around 190,000 workers, which falls in line with earlier predictions. All in all, the American economy is standing strong.
“The ‘pothole’ is a political one with far-right parties gaining ground in opinion polls ahead of both a Dutch and French ballots in spring,” Luca Paolini, chief strategist at Geneva-based Pictet, said in a research note. “We are scaling back exposure to European stocks, albeit retaining our overweight stance.”
Unfortunately, the outlook isn’t as optimistic in Europe. Fierce presidential elections in Germany, Holland & France are kicking up a storm. Growing odds that these countries will adopt far-right candidates is fueling fears about the future of the European Union. The Stoxx Europe 600 lost 0.5%, while the Deutsche Bank dropped a solid 5.5%. The results were just as bleak with the euro, which weakened 0.2%. This put it at $1.0605, making it the worst performer amongst major currencies after Norway’s krone.
As international stocks fluctuated, commodities were equally mixed. Fears that China’s demand for metals is faltering caused copper & aluminum to fall. Both lost at least 1.1% as the future of production looks hazy at best. While metal fell, crude is back on the rebound. Increased drilling in the U.S. made up for the oil lost in Libya’s clashes. This helped crude rise 0.2%, leaving it at $53.49 a barrel.
Now that more presidential elections are approaching, the market is reacting accordingly. Europe is already reeling, since the chances of controversy are almost guaranteed. This will be interesting to see how things play out, since the EU may start to unravel. The Fed’s promises weren’t surprising, but they will still have short term effects on US stocks. Investors are holding their breath, since the future is far from certain.