News Column

MARKET COMMENT: US Stocks Seen Little Changed Ahead Of FOMC

June 18, 2014

James Kemp



LONDON (Alliance News) - US stocks are set to open little changed Wednesday, as investors wait on the sidelines ahead of the latest policy decisions from the US Federal Open Market Committee and subsequent monetary policy statement and press conference.


"We’re potentially seeing a little bit of caution from traders ahead of the opening bell on Wednesday, given the FOMC decision and press conference later which always has the potential to create big moves in the markets," says Craig Erlam, a market analyst at Alpari.


Ahead of the New York bell, the UK'sFTSE 100 is up 0.4% at 6,791.44, the FTSE 250 is up 0.2% at 15,618.81, and the AIM All-Share is up 0.1% at 786.22. In Europe, the DAX 30 in Frankfurt is up 0.2%, while the CAC 40 in Paris is flat.


On Wall Street, prior to the US equity market open, the DJIA and S&P 500 are called to open almost perfectly flat, while the NASDAQ Composite is indicated to open up 0.1%.


"US markets seem to have finished their short-lived dip, but ahead of the Fed meeting enthusiasm is in short supply," says Chris Beauchamp, a market analyst at IG. "Most traders believe that the best course is to wait and see how the decision and press conference develop," he says.


Following the conclusion of the two-day Federal Open Market Committee meeting, the Fed's interest rate and asset purchasing programme decisions, together with the FOMC's economic projections, are released at 1900 BST, with the Fed's monetary policy statement and press conference shortly after at 1930 BST.


The central bank is widely expected to hold interest rates unchanged at 0.25%, and is expected to trim the size of its quantitative easing programme by another USD10 billion to USD35 billion a month.


However, "it's not necessarily the decision itself that has the potential to shake things up, with the Fed being quite clear in the past that it intends to continue to taper by USD10 billion per month unless circumstances drastically change," says Erlam. "While this may be a little predictable, the same can never be said of the press conference, especially one that includes a new set of economic projections that could alter when the Fed expects to bring an end to its quantitative easing program and, more importantly, begins to raise interest rates," he says.


In US data already released, the US Mortgage Bankers Association said applications for US home mortgages decreased 9.2% on a seasonally adjusted basis in the week ended June 13, compared with a 10.3% increase in the previous week.


Also in focus Wednesday, US first quarter current account information is released at 1330 BST, while former Federal Reserve Chairman Ben Bernanke gives a speech at 1845 BST.


In the forex market, the pound continues to trade a little lower against the dollar following the release of the minutes from the Bank of England's latest Monetary Policy Committee meeting.


All nine members of the Monetary Policy Committee voted to retain the record low 0.50% interest rate, and its stock of GBP375 billion in asset purchases unchanged.


Sterling jumped in the immediate aftermath of the release, as the minutes noted surprise among some of the MPC members at market expectations of a late timing for the first UK interest rate rise, given the possibility that the improving economy may use up slack faster than expected.


However, there was something for both hawks and doves in the minutes, and the currency quickly lost its gains.


"Although the minutes expressed a more hawkish sentiment from the MPC, the members of the MPC voted unanimously to keep interest rates and QE unchanged and said that they need to see 'more evidence of slack being absorbed' before they would raise rates," says Kathleen Brooks, research director at Forex.com.


"Since the committee still sees the amount of slack in the economy at between 1%-1.5% of GDP, a rate hike in the next few months seems unlikely. Some market participants may have been disappointed by this, as they may have expected a couple of members to bite the bullet and vote for a rate hike," she adds.


Ahead of the US open, the pound trades at USD1.6944.







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Source: Alliance News


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