Pensive markets tread water ahead of FOMC

Expectations are high ahead of today's crucial meeting – will the FOMC finally pull the trigger?

The Federal Reserve building
Source: Bloomberg

Considering tonight’s FOMC interest rate statement is arguably the most important this year, it is hardly surprising that FX and equity markets are pensive ahead of its release tonight. Fed Chair Janet Yellen has already told Santa what she wants as an early Christmas present and only time will tell if she has been good enough to get it.

Over 95% of institutional analysts are calling for a 25 basis point increase and futures markets are factoring in an 80% chance that is what we will see. Although we have not seen any US economic releases that would warrant de-railing this decision, it’s not like the data has conclusively proven it is essential either.

Around the eurozone, the template of improving manufacturing and weakening services PMI data has once again been delivered. The soft services data can partially be attributed to the events in Paris, but even with these being factored in, the ECB’s tweaks to the current QE scheme are unlikely to be the last stimulus ECB President Mario Draghi brings to the table.

In an almost perfect mirror image of yesterday, UK food retailers Tesco, Sainsbury’s and Morrison’s make up the bulk of the biggest FTSE fallers, denting hopes of a jolly Christmas sales season. The continued amalgamation between Dixons and Carphone Warehouse looks to have borne more fruit with pre-tax profits coming in almost 10% above City expectations. Black Friday was a resounding success for the firm and the addition of Sir Ian Livingstone as deputy chairman explain why the shares have just hit multi-year highs.

The last few days has seen Brent crude price fall at a faster rate than its US light crude counterpart, and the last time we saw Brent crude close below US light was back in August 2010. Regardless of the tightening differential between the two the continued pressure on global inflation rates make the widely targeted 2% level a distant pipe dream for most central banks.

The information 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 Bank S.A. 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 and as such is considered to be a marketing communication.