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Equities, dollar retreat after Fed hike; oil plunges

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Equities, dollar retreat after Fed hike; oil plunges

➤ Stocks decline as Fed signals no pause to rate hikes next year.

➤ BoJ, BoE hold rates; Sweden's Riksbank hikes for 1st time since 2011.

➤ Dollar drops against major currencies; gold edges higher.

➤ Brent crude oil drops 3% to below $56 per barrel.

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Global stocks sold off while the dollar weakened further after the U.S. Federal Reserve delivered its fourth rate hike this year and signaled no end to its policy tightening through 2019 amid concerns on global economic growth.

In a widely expected move, the Fed raised its federal funds rate by 25 basis points to a range of 2.25% to 2.50%. It also trimmed the number of rate hikes in 2019, penciling in two hikes next year, compared with a September projection of three increases.

At a news conference following the decision, Fed Chairman Jerome Powell said officials' view of the economy next year has moderated but that they still expect the U.S. economy to perform well.

U.S. equities erased earlier gains after the Fed's rate hike yesterday, with the S&P 500 and the Nasdaq Composite closing down 1.54% and 2.17%, respectively, but futures point to a small bounce at today's open.

"The markets shot down the Fed's dovish tightening because they feel economic growth may not be as strong as the Fed believes and is certainly not strong enough to hold to the notion that monetary policy, in its entirety, remains short of neutral," Mark Vitner, senior economist at Wells Fargo Securities, wrote yesterday in a note.

Wall Street's decline spilled into Asia, with the Shanghai SE Composite index down 0.52%, Hong Kong's Hang Seng index falling 0.94% and Japan's Nikkei 225 dropping 2.84%.

In Europe, the FTSE 100 index shed 0.14% as of 7 a.m. ET, while Germany's DAX slipped 0.91% and France's CAC 40 index fell 1.34%, with shares in Airbus SE plunging 6% amid reports that the company is under investigation by the U.S. Justice Department. The wider Stoxx Europe 600 fell 0.83%.

"Despite Powell's upbeat view on the economy, markets are saying that they think the Fed is making a mistake," wrote Brown Brothers Harriman, adding that the Fed could be "too upbeat on the economy and so will continue to hike and likely push the U.S. economy into recession."

Yields on 10-year U.S. Treasurys stood at 2.77%, while that on 2-year notes rose 2 basis points to 2.66%. The dollar declined against major counterparts, with the index measuring its performance against a basket of peers slipping 0.79% to 96.27.

The Japanese yen, traditionally seen as a safe-haven asset, rose 0.67% against the dollar as the Bank of Japan decided to maintain its ultra-loose monetary policy. Sterling increased 0.61% against the dollar as retail sales in the U.K. rose more than expected in November and as the Bank of England kept its interest rate and quantitative easing programs unchanged, as expected.

The euro appreciated 0.80% against the dollar, while the Swedish krona rose 1.79% against the dollar after the Sveriges Riksbank raised its repo rate to negative 0.25%, its first hike since 2011. The krona strengthened 0.94% versus the euro.

Brent crude oil dropped 3.23% to $55.39 per barrel on the ICE Futures Exchange amid production concerns.

"Further losses in Brent prices look likely now that we've fallen below $57 a barrel with the real prospect we could see a test of $50 a barrel in the coming weeks," said Michael Hewson, chief market analyst at CMC Markets UK.

Gold edged 0.23% higher to $1,259.30 per ounce.

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The day ahead:

8:30 a.m. ET – U.S. jobless claims (Econoday consensus: 220,000)

8:30 a.m. ET – Philadelphia Fed Business Outlook Survey (Econoday consensus: 16.5)

10 a.m. ET – U.S. leading indicators (Econoday consensus: 0.0%)

10:30 a.m. ET – EIA Natural Gas Report

4:30 p.m. ET – Fed balance sheet

4:30 p.m. ET – U.S. money supply

6:30 p.m. ET – Japan consumer price index