Wall Street has opened higher this afternoon, helping US stocks to make back some of their shocking losses from yesterday.
Expectations are high that the Fed will wave its magic wand and make it all better, but we worry about what might happen if Ben Bernanke fails to be sufficiently reassuring.
By 3.30pm (London time), the Dow Jones was up 1.95% at 11021.04, while the broader S&P 500 pushed doggedly higher after yesterday's cataclysmic losses, up 2.46% at 1146.97. The tech-focused Nasdaq 100 was the best performer of the three, up 2.95% at 2121.04.
World waits for the Fed
All eyes now turn to the Fed's latest policy decision, which is announced to the world at 7.15pm (London time). We can only imagine what sort of discussions will have been going on inside the Fed building, but it is known that the various Fed members hold divergent views on the subject of further explicit government support for the economy.
Various possibilities present themselves, which include selling short-term securities and buying longer-term ones to drive down the yield curve, or it could pledge to hold rates lower for an even more extended period.
None of the possibilities are without risks, and there exists the chance that the Fed will do nothing, which could prompt even more volatile gyrations in world markets.
Bears on the prowl in London
This morning's impressive drop on the FTSE 100 means that the index now has the dubious honour of being officially in bear market territory.
Global growth concerns, fears about Eurozone sovereign debt and US fiscal sustainability have all played their part in the recent sell-off, and the footage of rioting on the streets of London has hardly helped investor confidence.
The FTSE 100 has managed to stage a recovery during the afternoon, helped by the higher open on Wall Street, with mining stocks aggressively clawing back some of the recent declines.
Both Xstrata and Antofagasta both added more than 5%, but the 6% fall in RBS shares today meant that London's leading index struggled to hold on to gains. By 3.30pm (London time), the FTSE 100 was up 0.92% at 5115.74.
Mr Trichet speaks to markets
Jean-Claude Trichet continues to keep his merry band at the ECB in the spotlight this week, as he gave the first real indication to the market that the bank was indeed active in the Eurozone bond market.
Mr Trichet confirmed that the bank had bought bonds, although he declined to say which bonds it had bought, or indeed how long the ECB would continue its shopping spree. He added that Eurozone countries should step up the efforts to fully implement the resolutions agreed upon at last month's summit.
While ECB intervention appears to have calmed online spread betting markets for now, the lack of certainty surrounding the ECB's action means its long-term impact will be somewhat muted. Unless investors know that the ECB is committed to a sustained programme of buying in the sovereign debt markets of Italy and Spain, they will be unwilling to commit to holding these bonds for the long-term.
Oil prices gain
Oil has enjoyed a rally today, assisted by the weaker US dollar, with Brent futures pushing back above the $100-per-barrel mark, and US crude futures coming off the lows for the day of around $75 per barrel.
Sentiment towards oil, one of the key bellwethers for economic growth, had been doubly hit by news that OPEC had cut its forecast for global oil demand growth, while continuing growth in Chinese inflation has raised the spectre of further monetary tightening in that country.
However, supply and demand fundamentals are quite different to 2008, with the war in Libya playing a key role in keeping supplies at a lower level. I suspect that it's unlikely that we will see oil slump as far as it did in 2008, but further declines cannot be ruled out.
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'Wall Street Opens Higher as Mining Stocks Lead Rally', Article by IG Index, last update: 9-Aug-11
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