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Investors in Europe took the Federal Reserve rate hike in their stride.
Both the Euro Stoxx 50 and the broader pan-European Stoxx 600 traded over 0.6% higher at the start of Thursday’s session.
France’s CAC 40, Germany’s DAX 30, Italy’s FTSE MIB, Spain’s IBEX 35, the Netherlands’ AEX and Switzerland’s CH20, all traded between 0.2% and 0.7% higher than their Wednesday close.
The UK’s FTSE 100 led the pack and rose more than 1%.
Carmakers and industrials led the Paris index, with Renault gaining more than 2%, Stellantis 1.6% and Schneider Electric 1.3%. Technology went the other way, with Dassault Systèmes falling 2.4%.
The calm followed a rougher session in New York, where the Dow Jones Industrial Average closed 1.2% lower on Wednesday and the S&P 500 fell 0.4%, while the Nasdaq was broadly flat.
Asian markets were mixed overnight with Tokyo’s Nikkei 225 rising 0.2%, Seoul’s Kospi gaining 0.9%, while Hong Kong’s Hang Seng lost 0.7% and the Shanghai Composite 0.4%.
Reactions were “pretty much expected since the rate hike was also in line with market expectations”, said Lorraine Tan, director of equity research for Asia at Morningstar, adding that the Iran war is likely to keep pressure on inflation.
A stronger US dollar and higher yields
The more consequential moves were in currencies and bonds.
The US dollar climbed to its highest in seven weeks against a basket of major currencies, lifted by the jump in short-dated Treasury yields that followed the decision.
The euro was trading around $1.146, down 0.5% from Wednesday’s open.
A stronger US dollar makes European exports more competitive in American markets, but it also raises the cost of anything priced in dollars, which includes oil and gas, which compounds Europe’s energy bill at a difficult moment.
In bond markets, the two-year Treasury yield, the maturity most sensitive to rate expectations, jumped to around 4.72% from 4.67% before the decision, holding near that level on Thursday.
The 10-year sat close to 5%, reflecting both the war-driven energy shock and mounting investor concern about American government debt.
Traders now fully expect another rate hike by December and put the odds of a move as soon as October at around 50%. Goldman Sachs became one of the first major Wall Street banks to forecast consecutive hikes, reversing its previous view that this month’s move would be the only one.
Attention turns next to the Bank of England, which announces its decision later on Thursday and is expected to hold rates steady, and to the Bank of Japan on Friday, where a hike is anticipated.
Additional sources • AP