Market crunched as US Federal Reserve raises interest rates

Federal Reserve interest rate rise chairman Jerome Powell stock market
The US Federal Reserve has raised the official interest rate for the fourth time in 2018.

The Australian share market has crunched lower at the open today after a fresh interest rate hike by the US Federal Reserve once again left global markets struggling.

The Australian dollar was also weaker, hitting US$0.71 after Wall Street stocks were sharply lower following the revelation that the Fed was still considering at least two further rate rises in 2019.

There is a possibility of some recovery from here given that Fed chairman Jerome Powell stressed in his comments that nothing was set in stone and the Fed would react to data as it arrived.

However, the markets seemed disappointed that the only real change from the Fed was that now there were two interest rate rises expected in 2019 rather than three.

Trump hates rate rises

President Donald Trump hasn’t reacted to higher rates yet but his pre-decision comments that any rise would be a “mistake’’ and that the Fed should “feel the market, don’t just go by meaningless numbers’’ left little doubt as to his conviction that any rate rises are a mistake.

Just after the open the ASX 200 had shed 56 points to 5,542 and commodity prices across the board were mostly lower, with the exception of gold.

That was perhaps a bit better than was expected and continues the Australian market’s reasonable resilience in the face of wider market turmoil – with the caveat that we haven’t risen as far so we have less scope to fall.

Tech stocks fall hardest

Overnight, the Dow fell 1.5%, the S&P 500 1.4% and the tech heavy Nasdaq had an even greater fall of 2.2%.

Dow Jones Federal Reserve interest rate rise December 2018
The Dow Jones looks set to breach technical support levels.

Bonds were rallying as increasingly risk averse traders looked for refuge away from the volatility of stocks.

Oil has been particularly weak lately, with the Brent crude price down almost 6% to US$56.05 a barrel on Tuesday, only to rise to a still very weak US$57.24/bbl.

Oil weak on world growth fears

Promises of production cuts by OPEC don’t seem to have gathered much traction and oil is trading like it is still a glutted market, with weaker world growth coming down the pike.

Volatility indicators on the US market were actually down a little but with asset prices swinging around so quickly it is difficult to get a firm read on future direction.

What is certain is that world share markets have not taken kindly to the interest rate rise, although a bit of a rebound from here is not impossible once traders take a day to digest the Fed decision and commentary in its entirety.

The continuing weakness in technology stocks show that investors are no longer buying the future growth story and are retreating to certainty, which is bonds of all maturities and in a broader sense the rallying US dollar.

Fed chairman Jerome Powell’s statement on the rate rise:

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining, technology and biotech.