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It being Fed day, investors are stuck doing their best ‘rabbit in the headlights’ impression, unable to move much for fear of being caught out. What will be, will be, and we just have to note that the Fed remains a fair distance from both its unemployment and inflation targets. Thus, despite the fairly broad improvement in the US economy, it is probably too early to take the monetary policy crutches away.
In London, the FTSE 100 has wallowed in the red for most of the day, with miners and banks both broadly lower. Any attempt at a rally during the course of the day, as earlier this morning in the aftermath of minutes from the Bank of England, has been firmly rebuffed. Sir Mervyn tried one last tilt at the windmill with yet another vote for additional QE, leaving investors to ponder the potentially odd situation of the Bank of England easing while the Fed tapers. However, neither of those eventualities looks likely to transpire (at least, not yet), saving the outgoing governor’s blushes. The spark has well and truly gone out of Aggreko after its results yesterday, the share price dropping 5% as the company succumbs to profit taking.
US markets are also stuck between gains and losses, riven by indecision as they await news from Washington. Bereft of news, investors much simply wait and see. Ironically there will be plenty of data tomorrow, but all that might not matter if the Fed’s decision is deemed not to be the one that investors were hoping for.
Moves in the commodity space have also, unsurprisingly, been quite limited. Even if the Fed opts to stick with its easing policy we may not see any sustained rally in gold or silver, the erstwhile symbiotic relationship between the two seemingly broken permanently. If the hunt for yield returns in earnest then investors aren’t going to find it in precious metals.
Notwithstanding his failed push for more QE, the GBP/USD has managed to make some gains versus the GBP/USD today. Even though he voted for more QE, Sir Mervyn did say he saw signs of improvement in the British economy, although he has probably had to look very hard to find them. Like most other currencies however, the fate of the pound is not the hands of its own policymakers, but rather in those of Ben Bernanke and the Federal Reserve.