European stocks are expected to open higher Thursday as investors follow-on from another record-setting session on Wall Street following a hawkish statement from the U.S. Federal Reserve that pointed to at least three rate increases next year.
The U.S. dollar notched solid overnight gains against both the pound and the euro as traders priced in faster-than-expected increases in the Fed Funds rate, which currently sits in the range of 1% to 1.25%. The so-called 'Dot Plots', which attempt to guide markets towards the central bank's thinking on interest rates, now suggest at least one hike this year and three more in 2018. Fed Fund futures prices on the CME Group website now suggest a 70.5% chance for a December increase, up from around 55.8% prior to the Wednesday statement.
With the pound slipping to 1.3486 against the greenback, Britain's FTSE 100 is expected to open around 10 points higher at the start of trading, according to financial bookmakers IG. Benchmarks on the Continent are also poised to booked early gains, with the euro trading at 1.1882 thanks the greenback's overnight surge that is expected to help add around 0.5% to the DAX performance index and a similar percentage gain to the CAC-40 in France.
The expected reaction in Europe follows a relatively muted session in Asia, which saw the broadest measure of regional share prices, the MSCI Asia ex-Japan index, fall 0.35% by around 06:30 London time while the Nikkei 225 looked to add around 0.15% into the final half hour of trading in Tokyo after the Bank of Japan held its key rate unchanged at 0.1% and pledged to continue capping 10-year government bond yields at 0%.
This Is Why the Federal Reserve Sent the S&P 500 Lower on Wednesday
Last night on Wall Street, the Dow Jones Industrial Average and the S&P 500 climbed 0.19% and 0.06%, respectively, to close at new records. The Nasdaq fell short of its own all-time high after clearing that bar a day earlier after the Federal Open Market Committee announced after its latest regularly scheduled interest-rate meeting that it would hold the fed funds rate in a 1%-to-1.25% range, meeting economist expectations.
As expected, the Fed also said that it would begin unwinding its massive balance sheet, beginning with a reduction of up to $10 billion a month. However, plans call for that amount to increase by $10 billion a quarter and reach $50 billion a month by this time next year. The Fed holds $4.5 trillion in Treasury securities and mortgage-backed assets on its balance sheet.
Early indications from U.S. equity futures suggest a modest pullback at the opening bell Thursday, however, with the Dow priced to fall around 6 points, or 0.03% while the tech-focused Nasdaq is likely to give back 8 points, or 0.14%, at the start of trading.
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