Hong Kong (AFP) – Europe’s stock markets advanced Thursday and the dollar soared after the US Federal Reserve hiked interest rates as expected — and signalled three more rises next year.
The news sent the dollar spiking to a near 14-year high against the euro, as the hawkish prospect of more rate increases cemented support for the greenback.
Wall Street also opened higher.
The yield on 10-year US Treasury bonds hit the highest level since the summer of 2014, having already soared in the wake of Donald Trump’s surprise election victory.
Trump unexpectedly won the US presidency in November with populist promises to protect US jobs, ramp up infrastructure spending and slash taxes.
“The market is whole-heartedly embracing Trumpenomics and the idea that the US economy will be on fiscal steroids in the next few years. Rates will rise and the dollar will surge,” City Index analyst Kathleen Brooks told AFP.
“In contrast, the eurozone is mired in problems including slow growth, low inflation and multiple political risks in Italy and France.”
The London stock market meanwhile shifted into positive territory after the Bank of England held interest rates at a record-low 0.25 percent.
The British central bank said all nine policymakers agreed at a regular policy meeting to keep the rate on hold and to leave the amount of QE cash stimulus pumping around the economy at £435 billion ($543 billion, 521 billion euros).
In the eurozone, the banking sector bolted higher on expectations of swelling profits in Europe in the wake of the Fed news, dealers said.
“The main thing for Europe is the banks,” said ETX Capital analyst Neil Wilson.
“Banking stocks (are) driving European bourses higher after the Fed hiked rates and yields pushed higher.
“Banks are really enjoying this Trump bump and the Fed’s hawkish pivot.”
There were broad gains in the eurozone, with Frankfurt and Paris stocks both adding around 0.5 percent.
Frankfurt’s top gainer was Deutsche Bank, and the biggest winner in Paris was lender BNP Paribas, with rivals Societe Generale and Credit Agricole also surging.
– ‘Light at end of tunnel’ –
“There could be no better news for the banking sector than higher rates,” said London Capital Group analyst Ipek Ozkardeskaya, noting that the sector had struggled for years with the low global interest rate environment.
“They have seen their revenues squeezed (and) they had to increase their risk taking in order to secure tiny returns for their clients,” she added.
“Now, finally, they can see the light at the end of the tunnel.
“Higher rates means higher margins, improved organic revenues, lower pressure. This explains the cheerfulness in the banking sector.”
However, most Asian markets tumbled after the Fed announcement as investors worried about the prospect of tighter borrowing costs.
– Key figures around 1445 GMT –
London – FTSE 100: UP 0.1 percent at 6,957.38 points
Frankfurt – DAX 30: UP 0.5 percent at 11,302.63
Paris – CAC 40: UP 0.7 percent at 4,801.36
EURO STOXX 50: UP 0.7 percent at 3,233.44
New York – Dow: UP 0.2 percent at 19,825.87
Tokyo – Nikkei 225: UP 0.1 percent at 19,273.79 (close)
Hong Kong – Hang Seng: DOWN 1.8 percent at 22,059.40 (close)
Shanghai – Composite: DOWN 0.7 percent at 3,117.68 (close)
New York – Dow: DOWN 0.6 percent at 19,792.53 (close)
Euro/dollar: DOWN at $1.0437 from $1.0533 Wednesday
Dollar/yen: UP at 118.23 yen from 117.08 yen
Pound/dollar: DOWN at $1.2481 from $1.2559
Oil – West Texas Intermediate: DOWN 77 cent at $50.27 per barrel
Oil – Brent North Sea: DOWN 57 cents at $53.51
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