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İMKB sees moderate dip after Fed rate hike announcement
The İMKB-100 index had fallen 1.46 percent, or 765 points, by the end of the first session of trading yesterday, to reach 51,684.68. The index fell about 150 points in the first half an hour of trading, likely a reaction to the rate hike news. The index has been on a week-and-a-half-long spree, increasing slowly after falling more than 5,000 points in the span of three business days in the beginning of the month.
News that international credit rating agency Standard & Poors had upped Turkey’s long-term foreign currency and local currency sovereign credit ratings sent the İMKB-100 flying, to reach at 52,744.06 at 13:48 GMT yesterday, an increase of 0.36 percent compared to closing the previous day.
Investors saw the announcement on Thursday night initially as a prelude to higher borrowing costs across the board. In after-hours trading, the dollar strengthened on the expectation of higher rates. Yields on two-year Treasury securities rose, and stock futures dipped.
The dollar rose to 91.90 yen from 91.75 yen. The euro fell to $1.3472 from $1.3529. A stronger dollar put the pressure on the lira to peak at TL 1.530 -- a two-month high -- at the beginning of trading day. After the credit rating upgrade news it quickly dropped to TL 1.522 and even saw as low as TL 1.516. The TL/Dollar exchange rate was 1.519 at 13:48 GMT yesterday.
Growing investor optimism about the strength of the US economy helped boost the Dow Jones industrial average by 3 percent over the past three days. But the surprise Fed announcement after Wall Street trading closed has Asian traders wondering weather the so-called “exit strategy” from a loose monetary policy could stifle US consumer demand.
In the US on Thursday, the Dow rose 83.66, or 0.8 percent, to 10,392.90 while the broader Standard & Poor’s 500 index rose 7.24, or 0.7 percent, to 1,106.75. The Nasdaq composite index rose 15.42, or 0.7 percent, to 2,241.71, its fifth straight advance.
Earlier in Asia, Hong Kong’s Hang Seng stock index led decliners, diving 528.13, or 2.6 percent, to 19,894.02 while Japan’s Nikkei 225 stock average dropped 212.11, or 2.1 percent, to 10,123.58. Oil prices slid below $78 a barrel in Asia after the Fed’s rate hike sent the US dollar higher.
Discount rates up
The action won’t directly affect borrowing costs for millions of Americans. But with the worst of the crisis over, it brings the Fed’s main crisis lending program closer to normal. The Fed chose to bump up the so-called “discount” lending rate by one-quarter point to 0.75 percent. It takes effect on Friday.
The central bank said the step should not be seen as a signal that it will soon boost interest rates for consumers and businesses. It repeated its pledge to keep such rates at record-low levels for an “extended period” to foster the economic recovery.
T.J. Marta, a market strategist, said he thinks higher rates for American borrowers are still months away. But “I think one man’s normalization is another man’s tightening,” he said of investors’ initial anxiety.
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