Fed Raises Rates

The FTSE 100 opened at 6061 and spiked in the morning to 6160 before modestly finishing up for the day at 6102 (+0.68%).  Oil & Gas and Mining companies across the FTSE 100 and FTSE 250 felt the pinch today due to Brent oil being down where at the time of writing this Brent oil was down to $37.28 (-0.59%).  Companies like Premier Oil, Anglo American, Glencore and Tullow Oil all saw their share price fall today by -12.48%, -5.27%, -4.14% and -2.56% respectively.

Last night the Federal Reserve announced a unanimous vote for its first rate hike in almost a decade.  Interest rate increased by 0.25% to 0.50%.  This was good news for the hawks out there but it is not good news for everyone.  Firstly, the move only adds pressure on the UK to increase interest rate, most economists think it could happen within six months.  Secondly, a rise in rates could lead to an increase in borrowing costs for developing countries thus causing them to slow down even further.

Higher rates are likely to strengthen the dollar thus negatively impact countries and companies, that borrow in dollar terms, even further.  With the oil & gas market showing no signs of recovery any time soon and several countries announcing that they will not be holding back on output, we could potentially see an increase in defaults in highly geared oil companies that are facing an increase in their cost of debt.

Asia seemed to benefit from the hike as the dollar strengthened against the yen.  A weaken yen is a benefit to Japan as it makes them more competitive in terms of exports.  Australia is also hoping to see their currency weaken against the dollar and it is believed the increase in US base rate will do just that.  China’s markets sleighed into positive territory too as the Hang Seng finished up for the day.  In addition, the yuan depreciated even further as Beijing allowed the currency to fall to levels not seen since 2011.  Furthermore, due to being pegged to the dollar, Hong Kong’s central bank increased their base rate by 25 basis points too where rates now stand at 0.75%.  China’s central bank released its own statements by informing the market they anticipate the economy to grow by 6.8% in 2016, this is down by 10 basis points where 6.9% was previously announced.

At the close, European indices were up with the FTSE 100 +0.68%, the CAC 40 +1.14%, and the DAX +2.57%.  Asian indices were also up for the day with the Hang Seng +0.79% and the Nikkei 225 +1.59%.  At the time of writing this, US indices were down with the NASDAQ -0.76%, the S&P 500 -0.93% and the Dow Jones -0.79%.

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