Europe close: Stocks take Fed rate hike in their stride

European stocks pushed higher even after the Federal Reserve upped interest rates by 25 basis points, as anticipated, but struck a more hawkish tone than expected, signalling three hikes next year.

The benchmark Stoxx Europe 600 index was up 0.86%, Germany’s DAX rose 1.08% and France’s CAC 40 was 1.05% higher.

Spreadex financial analyst Connor Campbell said: “Janet Yellen struck a hawkish tone on Wednesday despite warning of a ‘cloud of uncertainty’ that will only disperse once Donald Trump has outlined his intentions more fully. The Fed chair also got a subtle dig in at one of the President elect’s most discussed policies, hinting that the proposed infrastructure spend may make little difference to the country’s fairly healthy labour market.”

In London, the FTSE 100 reversed earlier lows, pushing up 0.72%, as investors reacted to the Bank of England’s unanimous decision to keep interest rates and the size of its asset purchase programme unchanged.

Meanwhile oil prices were on the rise, with West Texas Intermediate up 0.4% at $51.24 a barrel and Brent crude up 0.54% to $54.19.

On Wednesday, the Fed raised the range of its main policy rate to between 0.50% and 0.75% and signalled that more interest rate increases were on the cards for next year than it had suggested at the meeting in September. Rate-setters in Washington DC were unanimous in their decision to tighten policy.

According to the newly-submitted 'dot-plot' graphs of interest rates projections from the Federal Reserve's board members and regional Fed presidents, the median expectation is for three quarter-point interest rate hikes in the following year, up from two previously.

A further three hikes were projected in 2018, followed by another three in 2019.

Bank stocks rose as result of the Fed’s rate hike with the Stoxx 600 bank index up 2.54%.

Miners were on the other hand down after the dollar gained on the back of the rate decision, making dollar-denominated commodities more expensive for other currency holders. The Stoxx 600 basic resources index down 2.16%.

In the currency market, the euro has dropped 1.24% against the dollar to 1.0401, its lowest level since 2003.

On the data front, business activity in the Eurozone remained steady in December, according to data released on Thursday.

Markit’s flash composite purchasing managers’ index – which combines the services and manufacturing sectors – came in at 53.9, just a touch better than expectations of a slight dip to 53.8 and matching November’s 11-month high.

The services PMI fell to 53.1 from 53.8, missing expectations of a reading of 53.7, while the manufacturing PMI rose to 54.9 from 53.7, hitting a 68-month high.

Elsewhere, British Gas owner Centrica pushed up after lifting its earnings outlook for the full-year.

Royal Dutch Shell edged higher despite announcing the upcoming retirement of its chief financial officer, Simon Henry.