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The FTSE 100 has pushed marginally higher on expectations that the US Federal Reserve quantitative easing punchbowl contains enough servings for another few rounds.
It’s almost ironic that equity indices are close to five-year highs, and adding to those gains, following Janet Yellen’s dovish testimony. This tends to negate the incoming Fed chairwoman’s categorical denials that a bubble may be forming in equities on the back of easy monetary policies.
The more risky equities are gathering momentum, with basic materials, energy and financial sectors all on the front foot. Vedanta is failing to keep step with the rest of the mining sector, falling 2.15% following reports that first- half revenue had dropped 17% to $6.16bn. The price declines across all commodities, in particular copper, can take a lot of the blame for the less-than-stellar numbers, and would account for why the FTSE has tended to underperform its European counterparts. Moreover, the below-par growth in key commodity importers has ultimately led to a pull-back in demand for base metals, and shows the continuing divergence between the stock market and the underlying economies.
Serco climbs to the top of the FTSE heap today, adding 2.85%. This will be of little comfort to shareholders, given the declines witnessed yesterday and the plethora of broker downgrades, which show little signs of relenting.
As momentum weakness starts to be felt in the eurozone core countries, the Ecofin meetings today are likely to focus on the never-ending discussions about the scope of the single resolution mechanism, and the knotty issue of bank recapitalisation via the European Stability Mechanism.
Macro data continues to support the eurozone's ‘fragile recovery’ story, and the year-on-year inflation slowing to 0.7% could well give the ECB cause to look at reducing base rates even further.
Later in the US, data in respect of industrial and manufacturing production will be released. Both reports are expected to be fairly weak despite some positive PMI data recently, with a 0.1% increase expected for both.
The Dow is currently expected to open up six points at 15,882.