FTSE 1% higher as profit-taking sets in

Heading into the close the FTSE 100 remains 1% higher, although the inevitable profit-taking has set in to some degree after such a strong start.

Financial opinion tends to move in herds. The herd’s opinion yesterday was that the US Federal Reserve would taper its quantitative easing (QE) policy, but Ben Bernanke confounded markets by swerving away at the last minute. This prompted a wave of buying by newly-enthusiastic investors. However the taper question has not, and will not, go away; the genie of tapering, once released, cannot be put back in the bottle. This will serve as a salutary lesson to any who assume that the course of monetary policy can ever run smooth.

UK investors seek out good yields

Gold stocks continue to lead the way in London, as the yellow metal bounces amid relief that Mr Bernanke has not yet called time on QE3. African Barrick is recouping some of its losses from earlier in the week, up 15%, while Fresnillo adds a more modest 6%, as the impact of a Mexican mining levy continues to weigh. Solid dividend payer United Utilities is 2.3% higher today after a trading statement. With interest rates still unmoved from record lows, investors will continue to look to such firms and their excellent yields (now around 4.8% for United) to relieve the problem of non-existent income from other sources. 

US markets tarry

US markets have stalled following their leap yesterday, and may well stay in this mode for the rest of the week. Still, Mr Bernanke appears to have a lit a fire under the equity market that will propel it higher, with good data likely to give additional impetus to any upward move. 1700 might have been firmly breached, but the latest all-time highs will probably provoke a degree of short-term selling, such as we saw in late May and early August. JP Morgan shares have been only slightly dented by news of the latest symbolic fine for the banking sector, but the Federal Open Market Committee news and its implications for global equities will take priority.

Gold bounces after lack of taper

Having bounced off $1300, we now wait to see whether gold will challenge the August high of around $1420; the key here is that there has been no taper. There has not been a suggestion of yet more QE in the US, and it is this element that could hold gold back – despite the calls of those expecting a new bull market now that the taper is off the table (for now).

EUR/USD reaches for 2013 highs

Mr Bernanke’s (non) move last night has emboldened EUR/USD traders to take the currency pair beyond $1.35, putting it fewer than 200 points from the year’s high, which are just above $1.37. The German election is the only real cloud on the horizon now, but it would be a major upset if eurosceptics did make significant gains. Like most Europeans, Germans have had enough of the crisis and would rather not rock the boat, even if it is they that are underpinning the rescue and recovery efforts.

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