Fed member warns QE not forever

Richard Fisher, president of the Federal Reserve Bank of Dallas, urged markets to prepare for a stimulus reduction, sparking the usual tapering fears. However, the small losses registered this afternoon do not imply any near-term panic.

Low-risk appetite

Investor risk appetite was the missing ingredient today for European indices, which manifested itself in declines for the mining and financial sectors. 

China's third plenum, a private conclave held by Chinese officials aiming to implement key reforms in the country, kept the markets guessing and capped gains in the commodity suite. The capping effect on the country's mining sector – comprising a key constituent of the FTSE – has kept the UK tied to a tight 20-point range, unable to make any real gains through 6720.

Construction company CRH, something of a newcomer to the LSE, added 3.46% as it saw like-for-like sales rise 2% in the third quarter. Cost-reduction plans for the less-than-stellar European operations are likely to help support the share price in the near term.

Aberdeen Asset Management made a return to the bottom of the index, as the fund manager continues its expensive bidding war with MacQuarie to acquire Scottish Widows Investment Partnership. The stock fell 4.83% as shareholders feared that the war could lead to a price paid over the odds.

Vodafone showed better-than-expected revenues of £22 billion for the first half of the year. Shares of the telecommunications company have added over 30% in the past four months and climbed a further 1.13% today. 

Yellen to testify

The new highs achieved in the Dow Jones yesterday saw sentiment fade and given way to some lacklustre trade today. The potential new chair for the US Federal Reserve Janet Yellen is to testify later this week, and traders and investors alike are loathe to instigate any new positions until this important speech can be digested and mulled over. While Ms Yellen is a supporter of loose monetary policy, recent US data may spur her to make early changes to the current status quo. Given that the Dow is but a hair’s breath away from the pivotal 16,000 level, there is a degree of caution that the long overdue correction may be set in motion by the new chairwoman's remarks. The indices is currently trading down 20 points at 15,763.

Pressure on pound

The surprising decline in UK inflation today has put pressure on the pound. At 2.2% year-on-year to October, consumer price inflation is creeping closer towards the Bank of England’s official target of 2%.  The UK average earnings index fell to 0.7% last month, missing the 1% estimate and marking a five-month low, so we may be a little premature in imagining that sticky inflation issues are behind us. Given that utility companies in the UK have been hiking electricity and gas bills, there may well be a different story to tell inflation-wise in the coming quarter.

Metals await QE signals

The US dollar has strengthened as the markets brace themselves for key speeches from two Federal Open Market Committee members this evening, which has kept a lid on both base and precious metal prices. As usual, market participants are steeling themselves for any signals that quantative easing tapering may happen sooner rather than later. 

The better-than-expected US employment numbers have left gold in particular quite listless. The price of the metal has languished below the $1300 level as inflationary pressure remains subdued in the majority of western economies. 

Better Chinese data over the weekend has been offset by the tapering fear which is capping any gains in copper prices. 

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