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Today was always going to be one of caution, with European traders fully aware that the most important event of the day would take place after markets had shut. To taper or not to taper has been the question on everyone’s mind and tonight’s US FOMC minutes could go a long way to answering that question.
FTSE 100 bulls have been absent for most of August, either sunning themselves on some far away beach having racked up profits in the first half of the year, or hiding behind their screens fearful of the consequences from a September tapering of the US quantitative easing process. Deciphering the garbled messages churned out by the Fed this year has been difficult, but institutional consensus is that we could well see $10 billion wiped off the monthly $85 billion of QE that equity markets have been gorging themselves on. Nobody likes starting a diet and the eurozone, which is not as far down the road to recovery as the US, would rather put this off for a while yet.
In the first couple of hours' trading it looks very much like Wall Street has succumbed to the malaise that has hung over its European counterparts, as traders twiddle their thumbs waiting for Ben Bernanke and the Fed team to speak. Although with an economy that has shown constant, if not outrageous signs of growth, US traders are still anxious over ability of equity markets to handle the start of the tapering process. Of course equity markets are fickle and within 24 hours of the first trench of tapering, markets will no doubt have already started speculating when the second cut will come.
Gold has again spent the day trying to gain enough courage to tackle the $1400 level but with caution being the byword for traders today it has struggled to gain suitable support for this battle. News out of Egypt has been somewhat calmer today but with US oil inventories due out this afternoon, the crude price could still be given stimulus for a move. This afternoon's latest existing US home sales were the highest since 2009, and ensured that copper traders spent the afternoon watching their screens.
Developing market currencies continue to struggle, none more so than the Indian rupee which has dropped another 2% today alone against the US dollar. The increasingly desperate measures being incorporated by the Indian government to try and prevent cash migration, and therefore prop up the rupee, are failing miserably. In the major currency crosses it appears traders are far happier sitting on the sidelines awaiting tonight's FOMC minutes.