The overnight session in Asia was mixed and the volatility was low as investors in the Far East were in wait and see mode. The mood in Europe is slightly more optimistic but trading volumes and market volatility are expected to be low in the run up to the Federal Reserve meeting. Traders who are active today seem to be happy to take on more risk, as Rio Tinto and Glencore are performing well, while defensive plays like GlaxoSmithKline and Shire are in the red. This bodes well for the equity rally that started just over a month ago.
The Fed fund futures market is pricing in a 4% probability of a rate hike tonight, so the focus will be on the commentary. Investors will try and ascertain whether the Fed will continue down the path of gradual rate hikes or else take a breather. A lot has changed since early 2016, and the jump in the price of oil and the declining fear surrounding China may make Janet Yellen more optimistic in her outlook. Should the Fed sound more hawkish, it will encourage equity traders to remain long and stocks are still relatively cheap compared with the beginning of the year. On paper, dovish commentary would be a sign to buy, but if the US central bank sounds concerned about the global economy it could trigger a wave of selling.
The UK budget could have an impact on a number of sectors. Insurers like Aviva and Legal & General are in positive territory at the moment, but Mr. Osborne is tipped to make changes to the pensions industry which could impact the way they do business. The pub sector is expected to be assisted by the reduction in the tax on alcohol, which would be of assistance to Mitchells & Butlers, and JD Wetherspoon.