Global shares fall on Fed rate hike, UK rate outlook

The Citi US Economic Surprise Index has started to fall off its peak and is now close to the trough seen at the beginning of previous year, which suggests recent economic figures have basically lagged behind market expectations.

And while Wednesday's quarter-point increase lifts the benchmark federal funds rate to between 1.0 and 1.25 percent, this is only the beginning.

In currency markets, the dollar was up 0.2 percent against a basket of major peers, having earlier traded in negative territory as investors wondered whether the Fed would be able to raise rates again this year.

She said the central bank feels confident it can avoid "market strains" by detailing its plan far in advance and by stressing that the process will be gradual.

Chief policymaker Mario Draghi stressed concern over weak inflation and, like the Fed, revised down the forecast.

Fed futures markets now put the chances for another rate increase this year to below 50 percent. The FTSE 100 appeared on the back foot after those difficulties in foreign markets, also remaining under pressure because of fears that the Brexit deal negotiations are likely to leave the United Kingdom walking away with a less than optimal trade and economic deal.

True, the unemployment rate is nearing a 35-year low, usually a clear sign of economic strength.

With GDP growth expected to remain above its long-term potential over the next few years, and the unemployment rate to remain below its long-run level, the Fed as a whole seems to be willing to look past what it sees as near-term economic noise. The Labor Department said its consumer price index dipped 0.1 per cent last month, weighed down by declining prices for petrol, apparel, airline fares, motor vehicles, communication and medical services, among others.

It expects to begin the normalization of its balance sheet this year, gradually ramping up the pace. It forecast that prices will rise just 1.6 percent this year, down from a March forecast of 1.9 percent. The Australian economy added 42,000 jobs in May, easily beating the addition of 10,000 jobs that economists were anticipating.

In morning inter-bank trading, the shekel-dollar exchange rate was down 0.25% at NIS 3.5203/$ and down 0.32% against the euro at NIS 3.924/€.

"The Committee now expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated", said the Fed in the statement. Fed Chair Janet Yellen stated her view in a press conference that the economy appears strong enough to withstand additional rate hikes, barring new indications of economic weakness.

And the growth rate in U.S. commercial and industrial loans moderated to about 2 percent in May from double digits in previous months.

"The meeting was definitely tilted towards the hawkish side", said ING market strategist Martin van Vliet.

"The rise of dollar leads to a drop in oil prices".

Brent crude, the Global benchmark, was down 12 cents a barrel at $46.88.

The yen rose 0.2 percent to 109.33 per dollar as of 7:55 Tokyo, after climbing 0.5 percent Wednesday.

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