Charting the Markets: A More Hawkish Fed Rattles Investors

Two-year treasury yields rise for a second day, the New Zealand dollar falls and Nokia shares jump the most in two years.

Is Fed Hawkish Enough for a December Rate Hike?

December is back on the table. After a two-day meeting, the Federal Reserve signaled interest rates could still rise in 2015. Traders have been jolted by the more hawkish tone, pushing the odds of a hike this year to 48 percent from 32 percent a week ago, according to Fed fund futures. Asian stocks fell for a third day, the longest stretch of losses in two months. The MSCI Emerging Markets Index dropped for a fourth day, sinking as much as 1.3 percent. European stocks fell for the third day in four.

The jump in two-year Treasury yields on Wednesday suggests Goldman Sachs and BMO Capital Markets were right in saying bond investors were underestimating the possibility of a U.S. rate increase this year. The 8 basis-point move higher was the most since March. The Fed is betting further job gains will lead to higher inflation over time. Meanwhile, the U.S. central bank dropped a reference to global risks in its statement. The probability of a move in January has risen to 55 percent from 40 percent a week ago. March's likelihood has jumped to 71 percent from 56 percent last Thursday, according to Bloomberg data. 

The New Zealand dollar fell against 15 of its 16 major peers after the country's central bank said it's likely to cut interest rates again. The comments came after the Reserve Bank of New Zealand kept its official cash rate on hold at 2.75 percent after three consecutive cuts. A strong currency is hampering the bank's efforts to bring inflation back to target for the first time in four years. In the past month the kiwi is the world's best performing developed currency, according to Bloomberg Correlation-Weighted Indices, jumping 5.6 percent, as expectations for U.S. interest rate increases got pushed back.

Nokia shareholders can expect a windfall after the Finnish network-equipment maker unveiled plans to return 4 billion euros ($4.4 billion) in dividends and buybacks. The good news doesn't end there. The company moved forward a target for the savings it expects to make from its $17.6 billion takeover of Alcatel-Lucent. Nokia shares rose as much as 11 percent, the most since it agreed to sell its handset business to Microsoft in September 2013. In that period, the stock has jumped 42 percent. 

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