Early gains for supermarket stocks haven't stopped the Australian sharemarket dipping to a fresh two-year low, with the bourse mirroring a Wall Street tumble following the US Federal Reserve rate hike.
The S&P 500 Index briefly fell after the announcement, while the 10-year Treasury note went to its lowest point since late May.
It was not the widely-expected rate hike itself that gave investors a headache so much as forecasts released by the Fed about what it expected to do next year.
The yo-yo movements for the stock market were a result of markets trying to parse Fed Chairman Jerome Powell's comments, which essentially were: The economy is strong enough to warrant a rate increase now, but not so strong to need three rate increases, as the Fed had indicated a few months ago. You've got inflation moving up to 2 percent.
Powell said the Fed will adjust accordingly to the economy, and that he and his colleagues will raise interest rates if the economy grows faster than expected. While officials said risks to their outlook "are roughly balanced, " they flagged threats from a softening world economy.
The benchmark S&P 500 index tumbled to a 15-month low, extending a streak of volatility that has dogged the market since late September.
Powell on Wednesday reaffirmed that the central bank will press ahead with its plan to reduce its $4.1 trillion in bond holdings. "We're going to do our jobs the way we've always done them", he said when asked about White House pressure. Fiscal deficit/debt and trade tensions are the major causes of worry and still loom in the U.S. economy, as articulated in our October analysis.
Mortgage costs, which are pegged to longer-term rates, may not move higher, but CD rates will.
The Fed members maintained an optimistic attitude towards the United States economy, minimizing the forecasts of the economy and inflation at 2019. The 10-year benchmark bond yield eased to 7.24 percent from the previous close of 7.22 percent.
Trump has always been opposed to rising interest rates on the basis they might hamper economic growth, and has in the past called the Fed "crazy" and "loco" for doing so.
Treasury Secretary Steven Mnuchin said Thursday that financial markets are overreacting to the Fed's rate hike this week.
Officials at the U.S. central bank voted to lift the Fed's key interest rate by 0.25%, to a target range of 2.25%-2.5%. Unemployment in November remained at 3.7 percent, its lowest since 1969.
The consensus of the committee was that the fed funds rate would have to rise twice next year, which is down from a forecast of three expected increases previously.
A strong yen also put downward pressure on stocks, with the dollar falling below ¥112.
The US is facing potential challenges from Trump's trade war, a slowing Chinese economy and the potential economic and financial turmoil that could come in the wake of Britain's exit from the European Union.
But a bounce in oil prices and Hong Kong stocks help staunch the selling and after two more wild swings it closed down 38.2 points, or 0.69 per cent, at 5467.6 on volume 25 per cent above average, as three of the four big banks hit multi-year lows.