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US rates rise, stocks fall

The US Federal Reserve lifted interest rates by 0.25% overnight. Fed estimates of the rate of increase for 2019 edged higher, but markets were apparently expecting an even more hawkish tone to the communications. The USD fell and shares initially rallied. However oil prices surged after data showed a large draw down of supplies, and investor enthusiasm crumbled. US stocks finished in the red. This morning the RBNZ declined to follow the Fed lead and kept NZ rates at record lows.

Investors are torn between the conflicting impacts on stock valuations of improving economies and higher interest rates. Further complicating the picture is confounding US dollar weakness. A stronger dollar was expected to transmit demand and inflationary pressures to trading partners. The ongoing failure of the currency markets to co-operate with economic orthodoxy places many assumptions about 2018 in doubt.

Futures markets show opening gains approaching 0.5% for most Asia Pacific markets today. The exception is Australia, where a small decline is expected. This is unusual in light of the gains in commodity prices overnight. A weakening US dollar saw both precious and base metals rally. Iron ore rose and West Texas crude jumped more than 2%. The commodity strength, combined with the morning release of jobs data for February could see the Australia 200 index fluctuating strongly over the day.

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