Traders return to fence sitting as we await news from the Fed
Investors are tweaking their positions in what is being called the “autumn of QE” caution as markets are preparing for the Federal Reserve’s decision on whether to begin tapering its asset purchase programme. After months of anticipation and speculation the Federal Open Market Committee must decide tomorrow whether to begin to wind down their quantitative easing. The anticipation is a $10bn-$15bn reduction in the $85bn a month programme. Some analysts are also predicting the Fed will seek to strengthen its forward guidance to stabilise the markets.
As has been widely reported, Janet Yellen is the frontrunner to become the Fed chairman. Although news coming out today suggests that the market’s reaction was overly positive and very simplistic given there is no guarantee she will be nominated.
These factors have caused a pullback in some of the major indices and mostly in the US bond market where ten year yields fell to 2.78 per cent. Even with the market thinking there will be a cut of $10bn from its quantitative easing programme, there remains uncertainty on how the market will react to the confirmation of such a cut.
Elsewhere, the UK government has raised £3.2bn from the sale of a 6 per cent stake in Lloyds Banking Group with the stock falling 2.1% on the news. The level of demand shows that people are confident in the UK’s broader economic recovery with getting taxpayers’ money back being a key target. It is fair to say this news is good news for the bank and the British public with a profit being made for taxpayers and a return to profit within five years compared to some of its rivals which are still years away from starting privatisation.
Glencore Xstrata lost 2.5 percent to 333.4 pence with further gains being limited by the outlook for coal and copper prices.
The continuation of the trend also hit European carmakers with car sales being driven down by 4.9 percent in the continent which has affected Volkswagen, Peugeot and Fiat respectively.
US CPI at 13:30 will provide the markets with a distraction before the Fed’s decision is announced tomorrow with the forecast anticipating a figure of 0.1%. With no other major data releases today, it is nice to know, tomorrow should bring an end to speculation that has plagued markets all summer, with the start of Autumn truly upon us.
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