29th Jan 2014 07:40
LONDON (Alliance News) - UK equities are set to follow US and Asian stocks higher Wednesday, as traders take positions ahead of the release of the US Federal Reserve's monetary policy decision.
The January Federal Open Market Committee meeting, Ben Bernanke's last, concludes Wednesday, and Federal Reserve policy makers are widely expected to announce a further USD10 billion cut to its quantitative easing programme to USD65 billion-a-month.
However, "while this is the consensus view, market participants would do well to remember that a large majority of them got it wrong in September when they thought the Fed would taper and didn?t, and they also got it wrong in December when the Fed did taper, and the consensus was that they wouldn?t," says Michael Hewson, chief markets analyst at CMC Markets.
Although December?s much-weaker-than-expected payrolls report has raised some concerns, "this is unlikely to be enough to shift the Fed from the policy course seemingly flagged by Bernanke?s December press conference," says Rhys Herbert, senior international macroeconomist at Lloyds Bank.
"Nor is the FOMC likely to feel constrained by recent weakness in emerging markets asset prices," he adds.
Indeed, chances of a cut were increased overnight as Turkey's central bank lifted its key interest rates sharply to 12% from 7.75% at an emergency midnight policy meeting to combat the weakness in the lira.
The decision follows on from India's central bank's decision on Tuesday to raise its key interest rates.
"These measures it would seem are calming concerns about a run on emerging market currencies," says Hewson.
Anticipation of the US Fed's decision, and the stabilization of the world's emerging markets, saw US stocks close higher overnight. The Nasdaq Composite closed up 0.4%, while both the DJIA and S&P 500 closed up 0.6%.
Similar sentiment can be seen in Asia. Ahead of the London equity market open, the Hang Seng is up 1%, with the Shanghai Composite index up 0.6%. The Nikkei is outperforming, up 2.7%, as it is pushed higher after Japanese automakers Toyota, Nissan, and Mitsubishi all reported strong growth in their vehicle production in December.
In the UK, both IG and CMC Markets indicate the FTSE 100 to open materially higher at approximately 6,615 points, up from 6,572.33 at the close Tuesday.
In UK data just released, the Nationwide Building Society revealed that house prices in the UK rose 8.8% year-over-year in January following 8.4% growth recorded in December. Economists had expected house prices to rise 8.5% year-on-year in January.
On the continent, Germany's forward-looking Gfk consumer confidence survey came in at 8.2 in February, up from the 7.6 reported in January. Economists had expected the reading to remain unchanged at 7.6.
The euro showed mixed trading against other major currencies after the data. While the currency jumped against the dollar and the yen to trade at USD1.3667 and JPY141.160, it fell to 1.2292 against the Swiss Franc. It held steady against the pound.
Still to come in the economic calendar, Italian business confidence is released at 0900 GMT, ahead of US MBA mortgage applications information at 1200 GMT. The US central bank unveils its monetary policy at 1900 GMT.
In the data calendar, FTSE 100-constituents Anglo American and Antofagasta have released production reports, while FTSE-250 listed BTG and Britvic have released interim management statements. Shell said it will sell its interest in an offshore Brazil block for about USD1 billion.
By James Kemp; [email protected]; @jamespkemp
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