Fence sitting until Fed

In mid-morning trading the FTSE 100 is marginally in the red as Federal Reserve fears grip traders. 

Federal Reserve
Source: Bloomberg
  • Traders cautious ahead of Fed decision
  • Buyers stay on the sidelines
  • Word of warning about future rate hike anticipated

Stock markets in Europe are sliding as the bullish sentiment is still absent. On paper, there are many reasons why equities should be higher; the Chinese market finished higher and has been relatively stable recently, and it is widely felt that the Fed will not move rates tonight, yet stocks are lower.

It says a lot about the lack of buying interest when the Fed is tipped to keep rates at an all-time low and equities still edge lower. The press conference after the interest rate decision will be carefully watched, and even if rates are kept on hold, traders are preparing themselves for hawkish language.

Janet Yellen is a known dove, but no central banker wants to give the market a free run and state rates will stay ultra-low forever. Meanwhile, investors are bracing themselves for a word of warning about an interest rate rise down the line.

We are expecting the Dow Jones to drop 10 points lower, at 16,730, and traders are clearly sitting on the fence until the Fed’s announcement this evening. Dealers are very cautious today, and the fear of hawkish commentary in the press conference after is keeping the buyers at bay.

No change to the interest rate has been heavily priced in, but the dealers know deep down what the US central bank is drifting towards and that is holding them back from buying.

 

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