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Market rally looks suspect

In mid-morning trading the FTSE 100 is broadly unchanged as dealers sit on the fence. 

London
Source: Bloomberg
  • German IFO data brings out buyers
  • Dealers are still wary of rallies
  • Markets meandering along

Stock markets got off to a slow start this morning as modest overnight gains from China put traders’ nerves at ease, and then a surprise in German business sentiment gave investors the green light they were looking for.

Ever since Black Monday dealers have been extremely careful not to rush in and buy the market without good reason, and even when they do the buying tends to taper off fairly quickly. We have had two days of serious declines in the last month and there is a feeling that some traders are scared to back into the water.

Equity markets are meandering along for now, but without extra encouraging news traders won’t stay in buying mode. Eventually the small gains that have been made this morning will be given up.

Volkswagen shares are a good gauge for the overall market. They are miles away from the high of the year, and despite small gains today there is a sense of another crash around the bend.

We are expecting the Dow Jones to open 40 points lower, at 16,240, and the speech from Janet Yellen that is expected today is already taking its toll on the equity market. Now that the September question has been put to bed the focus is now on December, and the latest Federal Reserve update wasn’t dovish enough to rule out at rate hike at the end of the year.

The full extent of the Chinese economic slowdown and the devaluation of the yuan has yet to play out, but the US unemployment and housing data are strong which is keeping dealers divided over a December interest rate hike. 

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