UK and US markets fall before tapering answers

This evening finally brings with it the event upon which all market participants have been speculating.

The Fed statement and accompanying economic projections have been circled in the diary ever since Ben Bernanke offered markets a teaser trailer on the potential conditions for QE tapering by the FOMC back in May. The consensus expectation is for a reduction of $10 to $15 billion per month in US treasury bonds, yet it is still far from a foregone conclusion in light of the most recent US unemployment data release.

FTSE set for third close lower

The Bank of England's monetary policy committee minutes as expected showed that no member was in favour of changing the current policy in respect of either base rates or quantitative easing. While this was sufficient to drive the pound to a new eight-month high against the US dollar, the UK benchmark index remained nonchalant.

Investors today had neither the nerve nor inclination to buy into a market that had such uncertainty attached. As other European indices edged near their five-year highs, the FTSE 100 failed to break through the 6600 level and is now marking its third consecutive lower finish. Significantly, the index is testing the pivotal 6540 level as we enter the close ahead of the much anticipated Fed press conference.

Arm Holdings has gathered some steam in the build up to Apple's iPhone 5 release, and has taken the top spot on the day, adding almost 3%. Aberdeen Asset Management declined almost 4% today – given its 12% surge since the end of August a bout of profit-taking was not unexpected, but a broker price-target downgrade sent the share to a two-week low. Morgan Stanley cited downside risks from weak fund performance as the reason for its pessimism.

US housing data disappoints

Stateside the S&P 500, despite looking toppy at current levels and residing a mere seven points from its record high, is practically volatility-free with little in the way of significant moves taking place in early trade. Markets are very much in ‘wait-and-see’ mode.

Housing starts were something of a disappointment and the vulnerability to rate hikes and tightening credit conditions are certainly something to think about. 890,000 starts were recorded versus the 930,000 expected.

FedEx, often a decent bellwether of economic activity, saw its share add 2.5% on news that its earnings had beaten expectations. The Dow Jones is currently trading down 29 points at 15,501.

Sterling hits eight-month highs

Sterling was a clear winner today, marking a eight-month high against both the dollar and the euro. The dollar index itself has seen a marginal increase as markets ready themselves for the potential stronger dollar in the aftermath of the Fed comments.

Brent climbs through $108

Oil has seen a bounce today, with Brent pushing back through $108 per barrel. Lower-than-expected US oil inventories and the expectation that the Fed will forecast a more positive outlook for the US economy is helping to underpin prices.

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