The few gains we have seen on the FTSE 100 over the past few days have been wiped out again this morning, as investor thoughts turn once again to the US Federal Reserve and possible developments on QE. However, we should be careful before ascribing too much importance to these moves, given the low volumes that prevail at the moment. The run of good UK news continues, as retail sales come in ahead of expectations.
House prices are rising, employment is on the up and people are spending more. It’s hard not to feel as if the British economy is starting to look much healthier, entering a potential self-sustaining loop that will finally lift us from the doldrums. Before we get too carried away, it should be noted that today’s rise in retail activity was prompted by the recent bout of hot weather, and this is not something that can continue. Imperial Tobacco’s results were well received, with the shares up 3.4%, but the decline in volumes is ongoing, something that the firm needs to stop fast before it becomes a major headache.
A Fed speech on today’s agenda will mean markets will be hesitant for most of the morning, and the flood of data this afternoon will be fed in to current observations about the likely direction of Fed monetary policy, but unless we have some well-dropped hints that suggest tapering is less likely in September then the day is likely to be marked by steady losses for equity indices. Ahead of the open we expect the Dow Jones to start 30 points lower at 15,307.