When faced with a Fed-related event, the most prudent course of action is to sit on one’s hands. Traders have followed this rule diligently today, with the FTSE 100 stuck in a 40-point range. We are still in the midst of the healthy bounce that has allowed markets to recover plenty of lost ground, but it all now hangs on the outcome of the Fed minutes. Grudging acceptance is the best way to describe the market’s reaction to tapering, but if the minutes come out as hawkish then it could throw its toys out of the pram once again.
In London, news of the Royal Mail initial public offering dominated proceedings. The ghost of the 1980s was abroad as business secretary Vince Cable took up the unlikely mantle of ‘Thatcher’s heir’, releasing the Royal Mail from the dead hand of state control. It might not be quite the public sector sell-off seen 30 years ago, but it could be the boost the national postal service needs.
Chinese sales have been both the salvation and the Achilles heel of Burberry, but today they are doing their bit to boost optimism, with excellent growth supported by a welcome return to form in east Asia. Consumers in Europe might be feeling the pinch, but the Chinese demand for trendy macs seems almost insatiable once again.
US markets opened briefly in positive territory, but they have followed the European lead and dropped into the red as the afternoon has progressed. It’s hard to escape the ‘rabbit in the headlights’ feeling that pervades trading today. This, however, means that we will probably be in for some volatility in the wake of the minutes, especially if the Fed minutes indicate a quicker-than-expected move towards a tighter monetary policy.
Commodities are also little-changed today, as the broader market goes into lock-down mode in advance of the Fed minutes. Gold is looking to continue its current rally, but hawkish minutes could easily pull the rug out from underneath the yellow metal, making another challenge on the $1200 level a distinct possibility.
Slight dollar weakness has meant that both the pound and the euro are looking to recover lost ground against the US dollar today, but without their own economic data to move them they are left at the mercy of the FOMC minutes. For EUR/USD, the key level for now is $1.2800, which is a line that has held twice so far this year.