The second day of trading in London for 2012 has seen the FTSE 100 give up early gains and slip into the red. US markets are also lower, despite the Fed's decision to start issuing forecasts for interest rates and some slight improvement in economic data.
By 3.45pm (London time), the FTSE 100 was down 0.84% at 5651.77. In New York, the Dow Jones fell 0.43% to 12,165.04 and the S&P 500 had lost 0.6% to 1269.09.
Markets drift lower
The overriding tone of this afternoon's session has been caution. With only minor economic data to cover, markets have been left somewhat directionless.
Although the FTSE 100 has fallen back from its early (if small) gains, Wall Street has been far more subdued, edging down slowly as the session continues.
There has been little impact from last night's Fed minutes, which were a general non-event in terms of providing more information on how the US central bank views the current state of the American economy.
Positive noises about the recent increase in growth were offset to some degree by comments related to the dangers inherent in the Eurozone debt crisis. However, in a significant departure from existing policy, the Fed said that it will issue forecasts for interest rates.
The first one will be issued after the January meeting, which will take place on 24-25 of this month. By doing this, the Fed hopes that it can encourage economic growth by removing needless speculation on when the next rise in interest rates will come.
By this logic, the performance of the US economy is being hampered by worries about when the next rate rise will occur, and thus money that could be used productively is being kept on the sidelines.
By giving guidance on future policy, the Fed hopes to encourage this money into the broader economy, stimulating growth.
Of course, the problem with forecasts is that each member of the Fed will have an opinion, and this risks laying bare any divisions on the committee. Ben Bernanke is gambling that this uncertainty will be outweighed by the additional clarity provided by the forecasts.
US data shows modest growth
US economic data today has been more mixed. Factory orders rose by the largest amount in four months, up 1.8% during December following a 0.2% fall a month earlier.
Durable goods orders, ie those expected to last at least three years, rose 3.7% during the month, slightly below the expectation of 3.8%.
Despite the general round of upbeat economic data seen in recent weeks, the fear remains that 2012 will be a difficult period for the global economy.
Investors remain essentially cautious about the prospects for the year. Safe-haven flows of funds to the US dollar and Treasuries mean that yields for ten-year bonds issued by Washington remain close to long-term lows.
With spread betting investors still anticipating further Eurozone troubles, slower economic growth in China and the potential for yet more easing from the Fed, the refuge of Treasuries is likely to remain attractive for some time to come.
Focus shifts to non-farm payrolls
Corporate news flow from the UK has yet to recover from the quiet new year period, and the focus for the week now shifts to US non-farm payrolls on Friday.
The general expectation is that this report will show the US economy to have added 140,000 jobs in December, and as usual we can expect a degree of volatility around this data point.
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'Index Spread Betting Markets Slip Despite Positive US Data', Article by IG Index, last update: 4-Jan-12
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