Markets rally ahead of FOMC meeting

Heading into the close the FTSE 100 is bouncing back, reaching 6400 once again, while indices in the US and Europe also record strong gains.

Federal Reserve building
Source: Bloomberg

UK markets lifted by earnings season

Turnaround Tuesday is back with us, if it ever really went away. The pessimists might say this is the rally’s last hurrah before QE departs the scene (pursued by the requisite bear) but earnings season, despite misses from the likes of IBM and Twitter, has once again been the foundation of equity market gains. With tomorrow’s Federal Reserve meeting seemingly likely to shift back to a more dovish setting further gains for the final week of October could be on the cards.

If there are gains then Standard Chartered might not be part of them. Yet another profit warning has taken the shares back to early 2009 levels, as the wheels seem to come off the emerging market strategy. Looking at the return on  equity forecasts for the coming years StanChart looks to have an uphill struggle ahead of it to meet expectations, while more than a few investors will be looking nervously at their dividend payouts too.

NASDAQ leads US markets higher

The S&P 500’s resurrection continues, pushing back to levels not seen in almost three weeks. A seven-year peak for consumer confidence and a soaraway Richmond Fed reading cancelled out a pre-open wobble that arose thanks to a weak durable goods number. It was the NASDAQ that led the way, moving higher despite Twitter’s further move lower following last night’s dive, helped by Apple rising once more on news that Alibaba might be looking for a closer working relationship.

With risk assets looking on form once again a dovish FOMC would be a cherry on the cake, markets being reassured that the Fed isn’t going to hike prematurely.

Gold still struggling

Downward pressure is still evident in gold even if weaker US data today has taken a bite out of the US dollar’s recent strength. Gold optimists have tried pushing the price higher but they face the uncomfortable reality that, dovish as tomorrow’s Fed meeting is likely to be, it isn’t going to be dovish enough to give gold a real lift. Short of some surprise about-turn on QE purchases, and in the absence of any ECB QE, the outlook for gold looks to be a gloomy one, with further declines taking us back towards the October lows. 

Oil bears haven’t been able to push the price much lower, and in US light the continued defence of the $80 level means that we could be shaping up for a short squeeze  here as oil longs get a grip towards the end of the year.

Euro and pound extend gains

Both the euro and the pound have extended gains today as dollar longs trim positions ahead of the FOMC decision tomorrow. The weaker durable goods number did spook the market slightly, but this was more than cancelled out by the Richmond Fed and consumer confidence numbers.

Oddly though inflation expectations in the latter figure remain distinctly elevated, and while inflation does surge when least expected it still appears that US consumers are probably getting ahead of themselves.

Congressmen like to bash the Fed for its apparent indifference to inflation, but Janet Yellen knows the cost ordinary Americans will pay if the Fed gets overexcited regarding rate hikes. 

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