(20 DECEMBER 2018)DAILY MARKET BRIEF 1:Fed sinks dollar and equities

The US Federal Reserve Bank yesterday lifted interest rates for the fourth time this year, but Chairman Jerome Powell suggested the pace of increase could slow down significantly in 2019. “The Committee judges that risks to the economic outlook are roughly balanced but will continue to monitor global economic and financial developments and assess their implications for the economic outlook.” In other terms, it means that the Fed will embrace a wait-and-see approach next year. The Fed is now expecting two rate hikes next year, compared to three suggested in September.

Markets were expecting a more dovish response from the Fed. After rising 1.5% ahead of the meeting, the S&P 500 collapsed 78 points and ended up the day down 1.54% at 2,506 points. More importantly, the Blue Chip index broke a key support (2,532.69 from 9 February 2018) as it closed at its lowest since October 2017. In FX, the greenback extended losses during both the Asian and early European sessions. EUR/USD rose 0.90% to 1.1480, while the Dollar Index gave up 0.75%. This is not the end of the sell-off, as the Fed continues to withdraw liquidity from the market at a pace USD 50 billion a month. The US economy has no choice but to deleverage.