The December bounce seems to have started in earnest, as European indices rally and unloved FTSE stocks find some buyers. Investors appear to be relatively unconcerned that tomorrow’s Federal Reserve meeting is still on the calendar, as year-end seasonality kicks in.
Given the heavy losses of the first weeks of December a bounce was always likely, and while it is hard to think how exactly Janet Yellen can stoke an equity rally tomorrow, it is entirely plausible that the heart will supplant the head for now, with investors deciding to enjoy the year-end bounce and endure the hangover come January.
A classic example of this has been the supermarkets; Kantar data this morning showed that only Sainsbury’s enjoyed any sales growth among the big four, with Tesco still in decline versus its peers and the challenger discount stores.
But for now the shares are up, with investors reasoning that Christmas will provide some positive news and provoke a short-term rally.
UK CPI figures were in line with expectations, but this modest growth was not enough to get the pound moving noticeably higher against the US dollar. Until Janet Yellen sits down tomorrow, most FX traders will therefore prefer to await developments, even with US CPI on the agenda for the afternoon.
Ahead of the open, we expect the Dow Jones to start at 17,482, up 114 points from yesterday’s close.