FTSE holds back after six-week high

While the FTSE may have established a six-week high yesterday, the financial sector is holding it back today, keeping trade in a fairly tight range ahead of the Federal open market committee statement tomorrow evening (London time).

European markets

Lloyds Banking Group has been the worst casualty, falling 3.3% after the government sold 6% of its stake in the bailed-out bank. Barclays was also under water, with news announcing that it is facing a £50 million fine for breaching market-listing rules. 

The failure to break through yesterday’s highs, despite the UK CPI easing to 2.7% in August as expected, suggests that investors are wary and less inclined to establish new long positions. The profit-taking that we are seeing is an attempt to drain what may be the final dregs of the rally. Since markets are, for the most part, expecting a tapering decision, any delay could be construed as a lack of US Federal Reserve confidence in the US economic recovery and may add some volatility and downside risk for equities.

US markets

Weaker-than-expected US inflation data in August may indicate that US GDP in the third quarter will fail to meet current expectations. The consumer price index showed an increase of 0.1%, lower than the consensus forecast for a 0.2% gain in August.

The US NAHB homebuilder sentiment index held at 58 in September, adding to the view that housing recovery continues to be the backbone of the US economic growth story. The index market's confidence is set to be at its highest level since 2005.

Microsoft, in the aftermath of its acquisition of Nokia, is to raise its dividend to 28 cents per share – a 22% increase. The software company also plans to initiate a stock buyback programme to the tune of $40 billion. The shares had climbed almost 2% in the pre-market but have settled back in early trade. The stock has now added 0.6%.

The Dow is currently trading up 50 points at 15,544.

Commodities

Gold continues to tarnish in the run up to the Fed meeting. The failure to make gains through the $1433/oz level last month means that bias lays with the bears. For now the $1300 level has yet to subside; any close below this psychological level will open up a return to this year’s lows of $1180.

FX

The kiwi dollar has taken the top spot in the G10 currencies today, as traders speculate that the high beta currencies will be the key beneficiaries of any taper talk tomorrow evening.

Safe havens are out of favour today, with the Japanese yen underperforming ever so slightly and remaining in a fairly non-eventful range against the US dollar.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.