Fed’s enthusiasm fades

In mid-morning trading the FTSE 100 is holding onto small gains as the Federal Reserve's enthusiasm diminishes.

London
Source: Bloomberg

Whatever gains were made on the back of the Fed’s statement last night are quickly being given back as traders have no solid reason to buy into the market. The Federal Reserve is keeping its cards close to its chest, as we learned little last night, and a September interest rate hike is still a possibility.

The fear the US is getting ready for an interest rate increase in two months has sent buyers to the sidelines, and the market has fallen into the downward trend it has been since April. There are too many negative stories looming over the stock market at the moment, of which Greece and China are the main contributing factor and combined they easily outweighed the Fed’s mostly neutral update.

RBS shares are trading higher today after the bank posted a surprise second-quarter profit, and this brings the government one step closer to unwinding its majority shareholding in the financial institution. CEO Ross McEwan is ramping up the rate of restructuring to try and whip the bank into shape as fast as he can, and even though it will be a number of years before the bank will return cash to shareholders the firm is moving in the right direction.

Diageo shares are in decline today after the full-year results confirmed that its European and North American divisions are standing still and the emerging markets are starting to slip. The drinks company is still registering good single-digit growth figures from developing markets for now, but the slowdown in Asia will cause headaches in the future, and by then America and Europe’s demand will not be enough to compensate.

Rolls-Royce shares are higher this morning as the firm’s first-half profits exceeded the very low analysts’ estimates. The aerospace and defence company has been dogged by profit warnings this year, and today’s announcement has helped to hold back the tide of sellers that stock has been enduring, but the market will need more convincing to stay long.

We are expecting the Dow Jones to open 20 points lower, at 17,750, as the boost that US stocks were given on the back of the Fed’s statement yesterday has worn off. Dealers have a short-term mindset, and as soon as they heard nothing to warrant an interest rate hike in the immediate future they jumped on the bandwagon, but it was short lived, and the statement was not so dovish it would justify fresh buying today.

Some traders are looking to September for an interest rate hike, and others think it’s too soon, but the Fed have been intentionally cagey and September can’t be ruled out. 

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