Dollar Surges after Fed Rate Rise as Bonds, Stocks Outside Japan Fall

The dollar was the chief beneficiary of the Federal Reserve’s first and only interest-rate hike of 2016, rallying to a 10-month high against the yen after officials signalled a steeper path for borrowing costs. Asian stocks outside Japan slipped with bonds, while European equities were gearing up for a mixed open.

The greenback extended its advance against major and emerging-market peers, except for Australia’s dollar, which rose after stronger-than-expected job gains. Japanese shares rose as the yen fell, while equities in Australia, China and Singapore slid and crude oil held losses. Government debt tracked a rout in Treasuries. The Korean won sank as much as 1.1 percent, even as the central bank held rates. China’s 10-year government bond yield headed for its biggest one-day increase and the yuan fell the most in a month.

The second U.S. rate increase in a decade tied off a volatile 2016 for markets. The year opened with investors whipsawed by ructions in Chinese trading and Japanese monetary policy, followed by shock election wins for Brexit and Donald Trump. The Fed moving further into tightening territory helps shift the focus away from global central-bank policy and toward fiscal stimulus, with Trump expected to stoke U.S. growth through spending. After hiking by 25 basis points, U.S. policy makers expect three rate increases in 2017, up from the two seen in September. Still, Fed Chair Janet Yellen sought to downplay the significance of that shift at a presser after the decision.

Like Korea, Indonesia is projected to keep its key rate on hold in a policy review Thursday. Singapore updates on retail sales and Sri Lanka reports on gross domestic product, while the Philippines issues figures on remittances from overseas workers.

Currencies

· The yen fell 0.6 percent to 117.71 per dollar as of 7:17 a.m. London time, extending losses and touching its weakest level since Feb. 4.

· The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was up 0.3 percent after Wednesday’s 1.1 percent jump. The euro fell 0.5 percent.

· The Fed lifted its target for overnight borrowing costs by 25 basis points, or 0.25 percentage point, on Wednesday to a range of 0.5 percent to 0.75 percent.

· “This is a very modest adjustment in the path of the federal funds rate,” Yellen said during the press conference. The decision to raise rates is “a vote of confidence in the economy,” she said, noting that some Fed officials, but not all, incorporated the assumption of a change in fiscal policies when making their forecasts.

· The won slipped as much as 1.1 percent, while the onshore yuan was down 0.4 percent after China’s central bank weakened its fixing by the most since August.

· Australia’s dollar gained 0.1 percent on better-than-expected jobs data.

Stocks

· The MSCI Asia Pacific Index sank 1.7 percent, the most since Nov. 9, even as the weaker yen’s boost to exporters allowed Japan’s Topix index to climb 0.3 percent.

· Australia’s S&P/ASX 200 Index lost 0.8 percent as energy and mining stocks led declines, while China’s CSI 300 Index slipped 1.1 percent.

· After the S&P 500 Index’s steepest drop since October on the back of the Fed’s decision, futures on the U.S. benchmark rose 0.1 percent Thursday.

· Contracts on the Euro Stoxx 50 rose less than 0.1 percent and futures indicated a higher open for shares in Germany and France. U.K. equities were set to decline.

Bonds

· Yields on 10-year Treasury notes rose one basis point to head for a sixth session of increases, including a 10 basis point jump on Wednesday that took them to their highest level since September 2014.

· China’s 10-year sovereign yield surged 22 basis points to 3.45 percent, set for a record increase on a closing basis, as a plunging yuan and hawkish Fed comments damped expectations of monetary easing in China.

· Yields on similar maturity Australian debt increased nine basis points to 2.88 percent; Indonesian yields climbed 10 basis points to 7.94 percent.

· Ten-year Japanese yields climbed three basis points to 0.08 percent.

Commodities

· West Texas Intermediate crude held at $51.07 a barrel, after Wednesday’s 3.7 percent slide.

· Gold for immediate delivery was down 0.3 percent to $1,139.82 an ounce, after sliding to its lowest price since February.

· “The FOMC was upbeat and more hawkish than anticipated,” strategists at Australia & New Zealand Banking Group Ltd. said in a note, referring to the rate-setting Federal Open Market Committee.

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