Indices And Company News

European bourses opened lower this morning following the US Fed’s decision to raise the discount rate.

The Fed’s decision weighed on the financials sector and also led to weakness in commodities and commodity-linked shares.

The FTSE 100 index got further hit by a set of weaker than expected UK Retail Sales data.

Moving into the North American open, European equities are still trading in negative territory with basic materials and financials as the worst performing sectors.

The Federal Reserve raised the discount rate to 0.75% from 0.5%, effective from February 19. (BBG/RTRS) They also shortened the typical maximum maturity for primary credit loans to overnight, effective March 18, and raised the minimum bid rate for term auction facilities to 0.5%.

The Fed said that these changes do not signal any change in the outlook for US economy, or its monetary policy, but are intended as a further normalisation of lending facilities.

Furthermore, the Fed said that the alteration is not expected to lead to tighter financial conditions for households and businesses, adding that outlook for the economy and policy remains about as it was at the January FOMC meeting.

In related news, Fed’s Bullard said he doesn’t see a high chance that the central bank will raise the federal funds rate this year. He added that the discount rate move is unrelated to the future of the main rate and he stands by the “extended period” language on rates.

Also, Fed’s Lockhart said the discount rate move is not a sign that tightening is imminent. (BBG)

Forex

Sterling traded lower for most of the session following ongoing concerns regarding the public finance situation in the UK, as well as the worse than expected UK Retail Sales figures.

Also, following the US Fed’s announcement, the USD index gained ground. However, earlier gains were pared into the European session and, moving into the North American open, the USD index has moved into minor negative territory.

In other news, the Australian central bank’s Chief indicated today he could raise interest rates by as much as 100 basis points in coming months, warning that monetary policy cannot stay expansionary as an economic recovery gathers pace. (RTRS)

Commodities

Heading into the North American open, WTI crude oil futures are trading lower after the Fed raised discount rate by 0.25%.

In gas related news:

• China’s natural gas production rose 7.7% last year to 83bn cubic meters.

In corporate news:

• According to reports, Schlumberger is in talks to acquire Smith International.
• Total said a strike affecting six French refineries and some fuel shortage depots has “intensified”. Also, French industry minister said it is out of question to close Flanders refinery.
• CGT union calls for a strike on Feb 22 at Exxon Mobile’s Gravenchon refinery in France.

On the geopolitical front:

• According to reports in NY Times, Iran worked to build a nuclear warhead. The UN added that findings by the organisation’s nuclear inspectors provided extensive evidence of “past or current undisclosed activities”. However, Iran has said that the UN nuclear warhead report is “baseless”.
• North Korea declared a firing zone off its west coast near the maritime border with South Korea.

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