This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Emerging markets and their increasingly unsuccessful attempts to prop up their currencies have spread mayhem to the major markets ahead of tonight’s FOMC tapering decision. As well-placed as the US might be to handle these changes to the current stimulus, it is becoming apparent that all too many other countries are not yet ready to be weaned from the teat.
UK stocks in the news
Shell has agreed to sell off a 23% stake in its Brazilian project to Qatar Petroleum for $1 billion. In modern times this amount of money is normally considered as small change for oil companies. The long-anticipated confirmation that Justin King will finally be stepping down from his reign as Sainsbury's CEO was made today. In July Mike Coupe, the firm’s group commercial director, will officially take over. Considering how long the markets have been speculating about this, you would hope for a smooth transitional process. UK banks continue to polarise opinion, with question marks over the exact number and timing of high-street branch disposals for a number of banks causing plenty of debate. The need to cut costs in order to finance numerous historical indiscretions continues to force their hands.
US markets jittery ahead of FOMC
Ahead of the US open, we have had better-than-expected figures from Dow Chemical Co, JetBlue Airways and Boeing. After the close tonight we will also hear from Qualcomm, Citrix Systems, Las Vegas Sands Corp and Facebook. Given the difficulties in converting users into a monetisable asset, it is not instantly clear which of the latter two is the gamble. It appears that the contagious fears over the FOMC’s strategy have finally crossed the Atlantic and infected US market confidence, but with Ben Bernanke making his final statement as Fed Chairman two hours before the close of US markets, we could yet see a change in sentiment.
Commodities benefit as stocks suffer
Nervy emerging currency markets, combined with equity indices that are failing to hold their ground ahead of tonight’s FOMC meeting, have proved to be fertile ground for sowing the seeds of doubt. As such, gold has received a timely boost. Oat prices continue their mesmeric drive higher, and have now risen some 27% in the last two months alone.
Once again the emerging-market currencies have given traders volatility, with the South African rand spiking after the country's first interest-rate hike in six years. In the last 48 hours we have seen India, Turkey and now South Africa raise their interest rates, as all three have seen their currencies battered over the last four months. More worrying is the fact that all these countries have reverted to trend so swiftly afterwards, showing that the markets have discounted these interest-raising actions in a matter of hours.