20th Mar 2014 07:42
LONDON (Alliance News) - UK equities are set to follow US and Asian stocks lower Thursday after comments made by Federal Reserve Chair Janet Yellen after the UK stock market close sparked fears that US interest rates may rise sooner than expected.
As had been expected, the Fed further reduced the pace of its quantitative easing programme Wednesday. It trimmed a further USD10 billion from its monthly asset-purchases, saying that its interest rate, which has been at an unprecedented low since December 2008, would likely remain near zero for a "considerable time" after the conclusion of its bond buying.
However, "it was the press conference after the initial decision which caused markets to sell-off sharply," says Michael Hewson, chief market analyst at CMC Markets.
Yellen, in her first post meeting press conference as Fed chair, said that the "considerable time" alluded to before interest rate was lifted was "hard to define", but "probably means something in the order of around six months, or that type of thing."
"Whether she intended it to be taken so literally is open to debate, but it was enough to prompt a sharp reversal, and as such we can expect to see a lower open in Europe this morning," says Hewson.
The NASDAQ Composite and S&P 500 both closed down 0.6%, while the DJIA closed down 0.7%. In Asia, the Nikkei in Tokyo has closed down 1.7%, while, ahead of the UK market open, the Hang Seng and Shanghai Composite index trade down 1.5% and 0.7%, respectively.
In the UK, both CMC Markets and IG indicate the FTSE 100 to open firmly lower at approximately 6,543 points, having closed at 6,573.13 on Wednesday.
Yellen's claims were supported by projections released after Wednesday's meeting. These showed that the vast majority of the 16 members of the rate-setting Federal Open Market Committee expects the first hike in interest rates to occur in 2015. One expects the benchmark rate to be raised before the end of 2014, while two forecast the increase only in 2016.
The central bank also altered its forward guidance on interest rates, following the example set by the Bank of England, dropping its 6.5% unemployment target in favour of a broader range of indicators.
In the forex market, the dollar shot higher in the wake of the comments, pushing to multi-day highs against the pound and the euro. Prior to the UK equity market open, sterling trades at USD1.6544, while the euro trades at USD1.3835.
In data just released, Germany's producer price index has recorded its seventh successive monthly decline.
The industrial producer price index decreased 0.9% in February from the same month of last year, the Federal Statistical Office said. This followed a 1.1% contraction in January. Month-on-month, producer prices held steady in February, after dropping 0.1% in the beginning of the year. Expectations were for a 0.1% increase.
Still to come in the data calendar, the UK CBI industrial trends survey is released at 1100 GMT. In the US, initial and continuing jobless claims data are released at 1230 GMT, ahead of existing home sales data and the Philadelphia Fed manufacturing survey at 1400 GMT. US bank stress test results are released at 2030 GMT.
In the corporate calendar, retailers Next and Ted Baker have been joined by Savills, Premier Farnell, Ophir Energy and UK Commercial Property Trust in releasing full-year results for 2013. FTSE 100-listed United Utilities has released a trading statement, while Crest Nicholson has released an interim management statement.
By James Kemp; [email protected]; @jamespkemp
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