Stocks have been in decline throughout the day as traders are closing out their long positions ahead of the US Federal Reserve’s announcement tomorrow evening. The Fed is currently operating a bond buying programme of €85 billion per month; some economists are predicting it will be tapered to €75 billion per month. Since the quantitative easing (QE) programme has boosted the equity markets over the past few years, any sign of it being reduced could lead to a sell-off, like the one we witnessed in May when Ben Bernanke hinted at tapering.
In London, the banking sector is off 1.5%. Lloyds has lost 2.8% as the government has reduced its stake in the lender by 6%, and Royal Bank of Scotland is also in the red as traders foresee the government unwinding its position in the financial institution in the future. Glencore Xstrata is lower after UBS dropped its rating of the mega miner from buy to neutral; the share price is down 2.3%.
In the US, we are expecting the Dow to open 16 points higher at 15,510. The inflation report for August showed prices rose by 0.1%, indicating that QE is not having a major impact on the cost of living.