Caution precedes FOMC minutes

Macro and event risk, along with a number of heavyweight stocks going ex-dividend, kept a cap on upside gains in the UK benchmark today.

Despite the promise of a continued low-interest-rate environment from the Bank of England today, the FTSE 100 remains steadfastly below the 6700 level, with ex-div defensive stocks providing the most drag.

Traders eager for tapering news

Futile as it may seem, traders are clearly holding out for a timetable on tapering from the FOMC. So until minutes from the latest Federal Reserve meeting are released later this evening, we can expect to see little upside in riskier assets. Aberdeen Asset Management has been the recipient of several broker upgrades, and has added to yesterday’s gains. The stock has now seen an increase of 15% since last Friday’s close.

Tomorrow brings with it a plethora of data from the eurozone in respect of services and manufacturing output. The constant concern that the fundamentals of the various economies are not aligned with the rallies witnessed in equity indices could well be borne out.

US equities static

The caution ahead of the FOMC minutes later this afternoon has manifested itself in a lack of real movement in US equity indices. Mixed economic data is managing to keep the markets guessing for the time being.

The fall in US consumer prices indicates that inflation concerns should not dictate any tightening of monetary policy. Given that CPI on the year is at its lowest level since 2009, maintaining the current status quo is the more likely scenario and puts a bullish blush on the current equity market trend.

US retail sales surprised to the upside, showing an increase of 0.4% on the month against the consensus view for an increase of 0.1%. This is not exactly a blow-out number, but has helped to give the US dollar a boost in light of the sentiment that any tapering is data-dependent - meaning that any better-than-expected data related to the US consumer, particularly during a government shut-down, can be construed as positive.

US existing home sales data showed a faltering in the sector, falling to a four-month low. Sales dropped 3.2% to 5.12m annually. This indicates that the higher mortgage rates now being offered, coupled with basic lack of supply, are impacting the once-shining beacon of the American recovery story.

A small but short-lived peek above the 16,000 level was witnessed earlier, but the Dow has retraced some of its gains and is currently trading up 22 points at 15,990.

Gold lacks lustre

Despite the caution seen in the wider market, gold is apparently unable to avail itself of any safe-haven buying in advance of the FOMC minutes. The fall below the $1260 support was initially bearish, yet the renewed but modest appetite on the back of the ECB negative rate reports has given the precious metal a get-out-of-jail-free card for now. Given that any long trades will have stop-losses residing below the 15 October lows of the $1250/oz level, any breach could result in an even sharper decline towards the $1200 metric.

Negative deposit rate news weighs on euro

News that the ECB is weighing up the pros and cons of a negative deposit rate for banks has seen the euro break lower against both the pound and the dollar. The move to the downside is coming from EU sources, and given how badly-received the recent ECB rate cut was by the core economies, the idea may be theoretical at best.

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