Treasury Yields Up, Stocks Slightly Lower After Fed Rate Hike

The crucial part of the busy week in financial markets started today in late trading, as the aftermath of the Federal Reserve’s rate decision saw the usual elevated trading activity. The central bank raised its benchmark rate by 0.25% (to a 1.75-2% range) as expected, and gave a slightly more hawkish than expected guidance causing some turbulence across the board. The bank hinted on two more rate hikes this year while the consensus was closer to only one more tightening step before the announcement.

US 2-Year Treasury Yield, 4-Hour Chart Analysis

Short-dated Treasury yields surged to higher in the US, with the longer end of the yield curve also shifting higher briefly, but as the dust settled, long-term rates pulled back. This further flattening of the yield curve reiterates fears that the Fed’s tightening cycle could push global growth lower, and the reflected in a slight dip in equities, and volatility in the recently weak emerging markets currencies.

S&P 500 Futures, Daily Chart Analysis

The renewed US-Chinese trade war fears also weighed on sentiment, but the leading global indices, the NASDAQ and the Russell 2000 are still just a hair off their all-time highs. The strong divergences are still present though, with the S&P 500 and the Dow still several percents off even their January highs, and the European and most of the Asian benchmarks being in even worse shape.

Dollar Drifts Lower as ECB Enters Spotlight

EUR/USD, 4-Hour Chart Analysis

The EUR/USD pair was in the center of attention around the Fed’s announcement, with the ECB’s meeting scheduled for tomorrow, but despite a brief selloff, the Euro finished the day in the green, back near the 1.18 level.

The market expects a hawkish turn by the ECB too, with several analysts awaiting the announcement of the end of the bank’s quantitative easing program, which could lead to a surge in the common currency.

USD/TRY (Turkish Lira), 4-Hour Chart Analysis

While the USD pulled back against its largest peers today, despite the rate hike and the higher than expected US PPI (Producer Price Index), emerging market currencies remained under pressure. The Turkish Lira is now lower than the levels before the second rate hike of the Turkish Central bank, and it’s also close to erasing the gains since the first, emergency rate hike.

The Argentinean and Brazilian currencies are also near their lows, despite the IMF bailout and central banks interventions, so risks remain elevated in interest rate sensitive assets, especially after the hawkish Fed release.

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.