Hopes of Fed action later this evening allowed markets to stage a recovery following yesterday’s losses, although the underlying sense of nervousness was reflected in the muted state of the FX spread betting market.
By 3.30pm (London time), both the Dow Jones and the S&P 500 were up 0.77% at 12,114.95 and 1246.02 respectively. In London, the FTSE 100 had fallen from its highs for the day, but was still up 1.37% at 5502.17.
Markets choose to rally in advance of policy meeting
It’s Federal Reserve announcement day, and that means markets are determined to push higher, ignoring the fact that the situation has changed little from yesterday. As ever, there is always someone willing to hope that Uncle Ben Bernanke and his team of policymakers will restore the bulls to their rightful place and announce a new dose of quantitative easing by the world’s most important central bank.
Even weaker-than-forecast US retail sales have been unable to put much of a dent in the rally. Sales rose 0.2% during November, a much weaker figure than the 0.6% growth seen in the preceding month, with growth forecast to have increased by the same amount in November as in October.
The data is slightly puzzling when viewed in the context of the usual ‘Black Friday’ scrum, which seemed this year to be even more extreme than before.
However, customers may have been encouraged in by substantial discounts, and the heavy discounting by stores over the post-Thanksgiving weekend may mean that sales in December and January suffer. Car sales were strong during the month, as were clothing sales, but food sales dropped.
Best Buy falls short
However, electronics retailer Best Buy failed to participate in the rally after its third-quarter profit missed estimates. The firm had been expected to make 51 cents per share after restructuring costs, but the actual figure was 47 cents per share.
Best Buy said that discounts designed to tempt shoppers on Black Friday had eaten into margins, and although it said it still expected to meet full-year forecasts, the shares dropped by over 10% to $25.17, down 27% over 2011.
Currency market remains quiet
The forex market has conspicuously failed to join today’s rally in stock markets, with perhaps a combination of eurozone unease and caution ahead of the Fed meeting, keeping markets in a fairly tight trading range.
The EUR/USD is on the cusp of a new 11-month low, and the single currency has dropped further against the pound.
Traders remain aware that Standard & Poor, the ratings agency that last week opted to put the entire eurozone on negative watch, is likely to complete its review of the situation in the near future. This is something which threatens to upset the delicate apple cart that, somehow, has not yet fallen apart in the wake of last week’s supremely indecisive EU summit.
Investors wait for the Fed
The Fed’s latest decision is announced at 7.15pm (London time). Investors will have to contend with just the statement from Mr Bernanke, as no press conference is scheduled. Perhaps this has something to do with the fact that today is ‘Helicopter Ben’s’ birthday – he is 58 today.
Markets do not expect anything major to emerge, but spread betting investors should note that the composition of the committee will change rather drastically between now and the first meeting of 2012.
Three of the hawkish Fed presidents will become non-voting members, while one of the doves will also give up his active voice. Of the four new voters, only one is of a hawkish bent, putting the doves firmly in the driving seat in the New Year.
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'EUR/USD Heads for 11 Month Low on Forex Spread Betting Markets', Article by IG Index, last update: 13-Dec-11
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