Traders cautious ahead of FOMC meeting

Heading into the close the FTSE 100 is up 20 points, although pre-Fed nerves are keeping gains in check.

Janet Yellen
Source: Bloomberg

Energy firms boost FTSE 

Investors are braced for a potentially hawkish statement from the Federal Reserve today, having had the Bank of England minutes this morning as a warm-up act. The gains made today on the FTSE have been founded on energy firms, which at the moment are benefiting from higher oil prices. Despite this, traders are keeping one eye on the Iraq situation at all times, with the uncomfortable knowledge that higher oil prices will not be beneficial for the global economy.

Pharma firm Shire continues to see buyers, as rumours swirl around the company, with Allergen (itself a bid target), touted as the most likely name. 

US markets move higher stalls

US markets have seen their move higher stalled today, as long positions are curtailed ahead of the Fed meeting. Two tasks appear to be on Janet Yellen’s list – continuing to hint at measures designed to ensure a smooth exit from monetary policy, while at the same time reassuring markets concerned about a potentially over-eager rise in interest rates. Forward guidance is an art in itself, but unlike Mark Carney Janet Yellen seems content to leave market consensus about rate rises unchanged.

Meanwhile, out-of-favour smartphone firm Blackberry has announced a deal with Amazon that has recharged the share price. A partnership with such a major player could well be the lifeline that Blackberry has been hunting for, dispelling the extreme pessimism that has clouded the company’s outlook. 

Gold could head lower

Gold and silver prices have stalled ahead of the Federal Open Market Committee meeting, but it doesn’t seem that the latest discussion at the Fed will provide any major upward catalyst. The situation in the US economy has certainly not deteriorated to the point where fresh easing is needed, and CPI data is the clearest sign that the Fed needs to be more worried about inflation than deflation. Gold’s drop back from $1285 has put the week-long trend under threat, and a more hawkish Fed will put pressure on the price, pushing closer to $1260.

Euro continues its move higher

The euro continued its move off 18-month lows after the BoE minutes failed to register a sufficiently hawkish tone on interest rates. However, the move higher is simply the latest bounce in the sustained downtrend, and the underlying picture of a gradually tightening BoE versus a cautiously easing European Central Bank remains intact. In these circumstances, it seems imprudent to rule out a gradual drift lower towards the 2012 low around £0.78, with only a close above £0.81 marking the start of a more sustained turnaround. 

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