Thursday December 16th

16-12-2021

Dow futures up nearly 200 points following Fed decision to aggressively wind down asset purchases

U.S. stock index futures rose sharply in early Thursday trading after the Federal Reserve signaled it would be aggressive on tapering and sees three interest rate hikes in 2022. Futures on the Dow Jones Industrial Average jumped about 170 points. S&P 500 and Nasdaq 100 futures added 0.5% and 0.3%, respectively. Shares of companies that have done well in previous rate-hiking cycles led premarket gainers. Materials stocks FMC Corp. and Freeport-McMoRan both rose more than 3% ahead of the opening bell. Bank stocks also rose across the board, with JPMorgan Chase, Citigroup and Bank of America all up about 0.6%. In transportation news, Delta Air Lines reported that it now expects to see a profit of $200 million in the fourth quarter, after previously projecting a loss. Shares rose 2.2% on the news. In other central banking news, the Bank of England announced it is hiking its key policy rate by 15 basis points to 0.25%. Markets were awaiting a separate policy decision from the European Central Bank. There also is more economic news on tap, with weekly jobless claims and housing starts out at 8:30 a.m. ET. Following the Fed news, traders accelerated their own expectations for interest rate increases. Fed funds futures trading now points to a 63% chance of the first quarter-percentage-point increase coming in May 2022, with chances also rising to about 44% that the central bank could make its first move as soon as March, according to the CME FedWatch Tool. Stocks traded in negative territory throughout the regular session Wednesday and turned higher ahead of Fed Chairman Jerome Powell’s press conference in the afternoon at the conclusion of the two-day Federal Open Market Committee meeting. The Dow added 383 points, or 1.08%. The S&P 500 rose 1.63% and the tech-heavy Nasdaq Composite jumped 2.15%. “The fact that the FOMC acknowledged new COVID variants as a threat to the economic recovery that could alter policy going forward, as well as the generally optimistic tone from Powell in the presser, helped spark a relief rally as the Fed meeting was viewed as being not-as-hawkish-as-feared,” Tom Essaye of the Sevens Report said in a note on Thursday. The Fed will begin reducing the pace of its asset purchases in January and buy just $60 billion of bonds each month going forward, compared to $90 billion in the month of December. That decision follows recent inflation data showing a 6.8% surge in November, which is higher than expected and the fastest rate since 1982. “The notion that elevated inflation levels would be transitory has finally been thrown out the window by the Fed and the latest policy adjustments are reflective of a committee that doesn’t want to miss the next train leaving the station,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. Corporate earnings looked to be a weak spot for the market on Thursday, with shares of Adobe and Lennar falling in premarket trading after underwhelming quarterly reports. On the economic data front, weekly jobless claims came in slightly higher than expected, while housing starts for November were much stronger than economists projected after declining in the prior month. Asia-Pacific markets were mixed Thursday as investors digested the U.S. Federal Reserve’s indications that its run of ultra-easy monetary policy since the start of the pandemic is coming to a close. In Japan, the Nikkei 225 rose 2.13% to 29,066.32 while the Topix index added 1.46% to 2,013.08. In South Korea, the Kospi rose 0.57% to 3,006.41. Hong Kong’s Hang Seng index reversed losses in late-afternoon trade and added 0.23% to 23,475.50. Chinese mainland shares advanced: The Shanghai composite rose 0.75% to 3,675.02 while the Shenzhen component rose 0.58% to 15,112.81. Oil rose towards $75 on Thursday supported by record U.S. implied demand and falling crude stockpiles, even as the spread of the Omicron coronavirus variant threatens to put a brake on consumption globally. Crude and other risk assets such as equities also got a boost after the U.S. Federal Reserve gave an upbeat economic outlook, which lifted investor spirits even as the Fed flagged a long-awaited end to its monetary stimulus. Brent crude oil rose by 62 cents, or 0.8%, to $74.50 a barrel, while U.S. West Texas Intermediate (WTI) crude gained by 65 cents, or 0.9%, to $71.52. Gold was boosted on Thursday by a fall in the U.S. dollar, after the Federal Reserve decided to end its pandemic-era bond purchases early next year. Spot gold was 0.5% higher at 1,785.60 per ounce by 1139 GMT. U.S. gold futures jumped 1.3% to $1,788.10.