Markets drift towards the weekend

The FOMC’s decision not to change rates has left equity markets underwhelmed.

Leadenhall building
Source: Bloomberg

As with all economic releases there are at least two ways of looking at an unchanged interest rate decision; it is good news as businesses can continue to enjoy cheap borrowing and hence a bounce in equities, or on the downside the economic recovery is not yet far enough advanced to be able to handle an increase in rates and markets sell off. The markets have decided to go for the latter as US, Asian and now European equity markets have sold off. In the Fed’s statement, weakness in emerging markets and tepid inflation numbers were, unsurprisingly, the chief reasons for the decision to leave policy unchanged. These issues are not however unique to the US, and last night’s statement will  likely be echoed by the Bank of England. Mark Carney can hardly be blamed for not rushing in where Janet Yellen fears to tread.

This weekend will see Greece once again go to the polls as they elect a new government, but as both front runners have stated their intent to uphold the previous government’s commitments to the last bailout, it should in theory leave markets untroubled. That of course is in theory. In reality, events in Greece of late have shown a propensity for surprise, usually of the bad kind. 

The week ends with a whimper, with little economic data to keep traders interested as the weekend looms. Indeed, with the Fed meeting out of the way stock markets will be cut adrift. Given the downbeat tone of last night’s statement regarding economic growth, there is so far little to encourage equity bulls. Ahead of the open, we expect the Dow Jones to start at 16,644, down 30 points from last night’s close.

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